(March 23, 2004) Federal Finance Minister Ralph Goodale opted for the prudent approach in his first federal budget, delivering a balanced fiscal plan centred on financial responsibility, with little new spending and no pre-election surprises.

“Some have suggested that we will throw fiscal caution to the wind,” Goodale said in his budget speech. “We will not. Some have said we will engage in a pre-election spending spree. We will not.

“We are making the initial payments that we can afford to make now,” he added. “In future budgets and in future years, we will build on the steps taken today.”

Although focused mostly on debt reduction and balancing the books, today’s budget contains a handful of new spending initiatives, most notably in the area of education.

Ottawa is introducing a Canada Learning Bond, which will provide up to $2,000 per child for post-secondary education. Assuming a conservative 3.5% rate of return, the bond could accumulate as much as $3,000 by the time the child turns 18, the government says.

Geared to families with annual incomes of less than $35,000, the learning bond program provides an initial $500 per child, followed by an additional $100 per year for up to 15 years. The cash can be deposited in an RESP and Goodale said Ottawa will work with the RESP industry to implement the program.

“When it comes to putting money aside for their children’s education, Canadians know how hard it is to save — but how important it is to start,” Goodale said.

In conjunction with the learning bond — expected to cost $325 million annually and benefit 2.2 million children — Ottawa is also increasing the Canada Education Savings Grant (CESG), raising it to 40% from 20% for low-income families (under $35,000) and to 30% for middle-income families ($35,000 to $70,000).

“That means for every five dollars that a low-income family contributes to an RESP, the government of Canada will add two dollars,” Goodale explained. The enhanced CESG will cost the government $80 million a year.

Ottawa is also providing new grants for first-year students from low-income families and those with disabilities, and will enhance the Canada Student Loan program, increasing the weekly loan ceiling and reducing the parental contribution expected from middle-income families.

There’s also some fresh spending on research, with Ottawa boosting funding for Canada’s three federal granting councils and providing $270 million in venture capital financing.

On healthcare, which Goodale called “the number-one priority of Canadians,” Ottawa confirmed the provinces will receive an additional $2 billion in health transfers this year, making good on an earlier announcement. Goodale added that those transfers would increase by an average of 8% a year.

But there was little else new in healthcare, although Ottawa did pledge to spend an additional $665 million on improving Canada’s readiness to deal with public health emergencies and announced the establishment of a new Canada Public Health Agency as a focal point for disease control and emergency response.

To assist communities, Ottawa says it will fully rebate the GST paid by municipalities, providing $7 billion in tax relief over the next 10 years. The federal government also allocated $4 billion over 10 years for cities to clean up contaminated sites across the country.

Debt reduction will remain a priority for the Liberal government, Goodale said, echoing the words of one of his predecessors, Prime Minister Paul Martin. Goodale announced that, similar to past years, a $3 billion annual contingency reserve would be maintained for the coming fiscal year.

For this fiscal year, the reserve was $1.9 billion, after Ottawa announced a $1 billion agricultural assistance package yesterday.

If not needed, next year’s reserve will go toward paying down the debt. In addition, the budget sets aside an additional $1 billion in economic prudence, which, if not needed, will be used to fund the priorities of Canadians, Goodale said.

Ottawa has set a new objective of reducing the federal debt-to-GDP ratio, expected to fall to 42% this year, to 25% within 10 years.

A commitment to fiscal discipline enabled Canada to address some of last year’s economic shocks, Ottawa says, such as severe acute respiratory syndrome and mad cow disease, adding that solid domestic fundamentals and an expanding U.S. economy are expected to support more robust growth this year.

As expected, there were no new personal income tax cuts in this year’s budget and no change to RRSP contribution limits.

2004
Federal Budget

“I see this is a not-rocking-the-boat budget,” says Dave Clarke, tax manager at Collins Barrow in Ottawa, who was in the budget lock-up with Advisor.ca. “There are no major new initiatives and no big surprises. They’re staying the course from where the last government left off with their fiscal and spending policies.”

“There’s not really a lot that’s positive except for the education stuff, like the increase to the CESG,” says Tim Cestnick, managing director of AIC’s tax and estate group, who was also in the budget lock-up. “But it’s small for the average Canadian.”

Ottawa weighed in on the controversial topic of securities reform in today’s budget, agreeing with the conclusions of the wise persons’ committee, which recommended the creation of a single securities regulator. Though no concrete steps were announced, the federal government says it will work with provincial and territorial governments to move the process forward.

In other market-related announcements, Goodale said Ottawa would sell off its remaining shares in Petro-Canada and would look at ways to address any overlap between the operations of the Office of the Superintendent of Financial Institutions and the Canada Deposit Insurance Corporation.


What do you think about today’s federal budget? Share your thoughts about Goodale’s offering with your peers in the Talvest Town Hall on Advisor.ca.



Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com

(03/23/04)

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