Federal budget 2016

Recommended reading, economic debates, predictions and opinions.
User avatar
ghariton
Veteran Contributor
Veteran Contributor
Posts: 15954
Joined: 18 Feb 2005 18:59
Location: Ottawa

Federal budget 2016

Post by ghariton »

Morneau will table his budget March 22. Projected deficits are $2.3 billion for 2015-16, $18.4 billion for 2016-17, and $15.5 billion for 2017-2018.

I personally think that is very optimistic.


Stephen Gordon muses about deficits:
problem for Morneau and the Liberals is that this is not a temporary downturn, and it would be irresponsible in the extreme to make tax and spending plans for the next four years based on the assumption that the economy will suddenly roar to life five or six years from now. A lower trajectory for revenues will have to be accompanied with a combination of tax increases that were higher than what they promised, or spending restraint more severe than what was in their platform. (It’s also worth remembering that these savings were to be on top of the spending restraint that was baked into the Conservatives’ last budget.)

This timing is unfortunate for the Liberals. Abandoning a balanced budget has removed the first line of defense against the wave of interest groups that had lobbied in vain for extra funding from the former Conservative government. They are even less likely to accept with grace arguments about fiscal restraint from a Liberal government that campaigned on running a deficit.
That's my fear, that the government will try to please every narrow special interest group in sight, ballooning the deficit without benefiting ordinary Canadians.

Here's a surprise:
The federal finance minister blamed the weak economy on the previous Conservative government.

"After 10 years of weak growth, Band-Aid solutions, and inaction from the previous government, Canada's economy was simply too vulnerable when faced with a combination of the drop in oil prices and economic uncertainty around the world," Morneau said in Ottawa Monday.
George
The juice is worth the squeeze
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33398
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: Federal budget 2016

Post by AltaRed »

As usual, blame the previous government. They all do regardless of who is in power. I will speculate the deficit will be over $20B given the Libs have not yet priced out all their promises and have not yet learned to say No. I am also guessing they still have not factored in all the indiects yet to be lost from the commodity crisis as more long term projects wind down. Barring any change in commodity prices, it will still take all of 2016 for the full impacts to be felt.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
Michael D
Contributor
Contributor
Posts: 733
Joined: 05 Nov 2008 16:23
Location: Ottawa

Re: Federal budget 2016

Post by Michael D »

They were handed, structurally, $5B deficits from the Cons' games they had to unravel.

It is important to spend. It is important to invest in Canada. A federal government is the biggest wealth redistribution scheme there is. Tax most, the rich a bit more, and redistribute to build a society.

So, if we have a $240B budget, this is less than 10% over spending. Anyone here who makes $240K a year ever borrow $18K to reno their home....or buy a car?
OnlyMyOpinion
Veteran Contributor
Veteran Contributor
Posts: 4231
Joined: 24 Jan 2014 23:17

Re: Federal budget 2016

Post by OnlyMyOpinion »

Michael D wrote:It is important to spend. It is important to invest in Canada. A federal government is the biggest wealth redistribution scheme there is. Tax most, the rich a bit more, and redistribute to build a society.
There are a lot of assumptions in that statement. Spending is not investing, redistributing wealth is not investing. Government is a massive, inefficient spending machine and it is getting bigger.
So, if we have a $240B budget, this is less than 10% over spending. Anyone here who makes $240K a year ever borrow $18K to reno their home....or buy a car?
If (when) I made $240k a year I had no need to borrow $18k or any amount, ever. In a household it is called living within your means. A household can't overspend and then arbitrarily increase their income to cover their inefficiency or waste. A Liberal government has no such scruples.

Added: Oops,I see now that this is not water cooler topic. My apologies for straying from News, Policy, Economics :(
Last edited by OnlyMyOpinion on 22 Feb 2016 19:55, edited 1 time in total.
steves
Veteran Contributor
Veteran Contributor
Posts: 3200
Joined: 01 Mar 2005 15:02
Location: Hornby Island BC
Contact:

Re: Federal budget 2016

Post by steves »

Ah, come-on you guys! What about the hair?
Live Rich, Die Broke (but not too soon).
DmDave
Contributor
Contributor
Posts: 124
Joined: 19 Jul 2013 14:17

Re: Federal budget 2016

Post by DmDave »

Garth Turner seems to have a pretty good track record of listening through the grape vine about the Fed budget. In his newest post, this is his take:

"On that theme, the Morneau budget will extend the war on the successful. First a new eat-the-rich tax bracket was created to finance a middle-class tax cut (but it doesn’t, since we don’t have enough wealthy people) and next month professional corporations will be targeted. Income-sharing with family members will be in the crosshairs, along with (I hear) tax avoidance through dividends distribution and holdco-opco structures, plus family trusts. Call this the whack-your-doctor tax."
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33398
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: Federal budget 2016

Post by AltaRed »

While I think deficits are bad because they encourage wasteful spending (and thus agree with OMO on this matter), some stimulus can be good, such as investing in the right 'infrastructure' when costs might be low. The problem is how to avoid the building of structural deficits. And worse, what happens when these new numbers will not keep/reduce overall debt as a percentage of GDP. I worry that the Libs have wildly optimistic GDP assumptions in their model. Only time will tell.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
User avatar
poedin
Veteran Contributor
Veteran Contributor
Posts: 2614
Joined: 27 Nov 2008 13:20

Re: Federal budget 2016

Post by poedin »

Morneau will table his budget March 22. Projected deficits are $2.3 billion for 2015-16, $18.4 billion for 2016-17, and $15.5 billion for 2017-2018.
I personally think that is very optimistic.
... and then the budget will be balanced? I think we can throw that promise out too - perhaps reality/desperation will settle in the last year of T2s mandate. :roll:
In the meanwhile, the other half of this chimerical mating spews forth its omen budget this week in Ontario.
Last edited by poedin on 23 Feb 2016 01:45, edited 1 time in total.
User avatar
ghariton
Veteran Contributor
Veteran Contributor
Posts: 15954
Joined: 18 Feb 2005 18:59
Location: Ottawa

Re: Federal budget 2016

Post by ghariton »

DmDave wrote:next month professional corporations will be targeted
I think so too. I wound my CCPC down last year. (But I didn't get the articles of dissociation approved in time, so will have to file yet another tax return for 2016.) I've been expecting this for some time now.

Oh well. The tax break was very nice while it lasted.

George
The juice is worth the squeeze
User avatar
ghariton
Veteran Contributor
Veteran Contributor
Posts: 15954
Joined: 18 Feb 2005 18:59
Location: Ottawa

Re: Federal budget 2016

Post by ghariton »

AltaRed wrote:some stimulus can be good, such as investing in the right 'infrastructure' when costs might be low.
Yes. A time of low interest rates is a very good time to carry out discretionary projects which are necessary, but which you have been postponing (such as repairing roads and bridges). But it isn't a good time -- it's hardly ever a good time -- to spend on marginally productive make-work projects.

As for stimulus for the economy, we need to face reality. Canada is a mid-size, very open economy. Our economy is driven by what is happening in the U.S. and elsewhere. Increased domestic spending will "leak" into imports, much more so than in a large economy such as the U.S. So while increased spending to stimulate the economy may make sense in a U.S. context, much less so in Canada.

In passing, I grow weary of Canada importing U.S. solutions when our problems are quite different.
The problem is how to avoid the building of structural deficits
Yes.

The answer, of course, is by increasing productivity and the competitiveness of our exports. But in my view, spending on infrastructure is only one of many measures, and perhaps not the most effective one. For example, the OECD has just published a report, entitled The Future of Productivity. In the last part, the outline a number of steps that they recommend to their members. These fall into three broad categories, in the OECD's words:

(1) Facilitating global learning spillovers

(2) Allowing productive firms to thrive

(3) Making the most of human capital

These are not just nostrums or platitudes. In Canada's case, the first objective can be pursued, for example, by pursuing freer trade and encouraging foreign direct investment, both of which allow us to learn from other countries (diffusion of innovation and best practices). The second objective could be pursued by removing the thicket of interprovincial barriers to firms and professionals. Removing regulatory barriers that exist for rent-seeking by narrow special interestsTM would also help. The third one requires a better matching the skills of workers and the needs of businesses. For example, employment insurance should not provide disincentives to labour mobility.

In concrete terms, pursue CETA and TPP despite opposition domestically. Try for a deal with China and India by all means, but focus on the deals we have already negotiated. Abolish supply management, so that our chicken and dairy industries have an incentive to become more innovative and start exporting. Help workers in sunset industries (like automotive) transition to industries with more promise (e.g. health care services and equipment). Encourage "medical tourism" here, and use the profits to expand health care for Canadians. And on, and on.

And above all, focus on the important rather than the easy or the feel-good.

Let's see how much of this ends up in the budget. (Not many, I'll guess.)

George
The juice is worth the squeeze
izzy
Veteran Contributor
Veteran Contributor
Posts: 3019
Joined: 19 Feb 2005 19:06
Location: Winnipeg MB

Re: Federal budget 2016

Post by izzy »

ghariton wrote:
DmDave wrote:next month professional corporations will be targeted
I think so too. I wound my CCPC down last year. (But I didn't get the articles of dissociation approved in time, so will have to file yet another tax return for 2016.) I've been expecting this for some time now.

Oh well. The tax break was very nice while it lasted.

George
I converted mine to a holding company when I retired so I hope the changes at least won't be retroactive although i wouldn't put it past them! Of course if the young docs head south as a result waiting lists will get even longer than they are already so even 75 year old retired docs like myself may have to re-enter the workforce! i guess it's nice to be needed!
"I disagree strongly with what you say, but I will defend to the death your right to say it."
User avatar
NormR
Veteran Contributor
Veteran Contributor
Posts: 5234
Joined: 18 Feb 2005 11:19
Contact:

Re: Federal budget 2016

Post by NormR »

izzy wrote:Of course if the young docs head south as a result waiting lists will get even longer than they are already so even 75 year old retired docs like myself may have to re-enter the workforce! i guess it's nice to be needed!
Well, the Bank of Canada's Loonie policy will likely prompt more brain drain over the next few years. The bank has the nerve to talk about productivity as human capital walks south.
DmDave
Contributor
Contributor
Posts: 124
Joined: 19 Jul 2013 14:17

Re: Federal budget 2016

Post by DmDave »

I'm still in my working years, will really suck if T2 decide to forbid, or start taxing heavily CCPC's. It's a great way to defer tax, not like I'm avoiding tax at all. Sucks to be a victim of the tyranny of majority.
izzy
Veteran Contributor
Veteran Contributor
Posts: 3019
Joined: 19 Feb 2005 19:06
Location: Winnipeg MB

Re: Federal budget 2016

Post by izzy »

DmDave wrote:I'm still in my working years, will really suck if T2 decide to forbid, or start taxing heavily CCPC's. It's a great way to defer tax, not like I'm avoiding tax at all. Sucks to be a victim of the tyranny of majority.
We have always had difficulty recruiting medical staff for rural and remote parts of Canada especially in the North.The younger doctors are increasingly female and both male and female are tending to choose lifestyle over all else and rarely work the hours we older ones used to work.We have an aging population requiring more medical services everywhere and the government is going to choose this time to remove one of the few incentives to work harder and longer hours ? what could possibly go wrong? :roll:
"I disagree strongly with what you say, but I will defend to the death your right to say it."
ig17
Veteran Contributor
Veteran Contributor
Posts: 3418
Joined: 21 Feb 2005 20:54

Re: Federal budget 2016

Post by ig17 »

Michael D wrote:It is important to spend. It is important to invest in Canada. A federal government is the biggest wealth redistribution scheme there is. Tax most, the rich a bit more, and redistribute to build a society.
Thank you. Someone had to say it. Tax and spend is the only way to prosperity. Just look at how great Ontario is doing. The last time it balanced the budget, we were still renting DVDs at Blockbuster. The results speak for themselves. Ontario is BOOMING. It's the envy of the rest of Canada and, dare I say, the envy of the entire world. 8)
izzy
Veteran Contributor
Veteran Contributor
Posts: 3019
Joined: 19 Feb 2005 19:06
Location: Winnipeg MB

Re: Federal budget 2016

Post by izzy »

ig17 wrote:
Michael D wrote:It is important to spend. It is important to invest in Canada. A federal government is the biggest wealth redistribution scheme there is. Tax most, the rich a bit more, and redistribute to build a society.
Thank you. Someone had to say it. Tax and spend is the only way to prosperity. Just look at how great Ontario is doing. The last time it balanced the budget, we were still renting DVDs at Blockbuster. The results speak for themselves. Ontario is BOOMING. It's the envy of the rest of Canada and, dare I say, the envy of the entire world. 8)
Yes!! the "Micawber principle" is so yesteryear and we can now spend like there's no tomorrow since there may well not be one--- due to Global Warming you know !!
So our descendants (if any) can pick up the tab or declare bankruptcy! Why should we care?
After all it's 2016! Vote NDP !! (uh oh! wrong party,I meant to say Liberal :oops: , comes from living in "prosperous"Manitoba!)
"I disagree strongly with what you say, but I will defend to the death your right to say it."
SQRT
Veteran Contributor
Veteran Contributor
Posts: 5441
Joined: 01 Nov 2012 11:33
Location: Ontario/Arizona

Re: Federal budget 2016

Post by SQRT »

DmDave wrote:Sucks to be a victim of the tyranny of majority.
As a high earner, I certainly agree with this. The top 1% will always be the target of the "pitch fork" crowd.
SQRT
Veteran Contributor
Veteran Contributor
Posts: 5441
Joined: 01 Nov 2012 11:33
Location: Ontario/Arizona

Re: Federal budget 2016

Post by SQRT »

izzy wrote:
DmDave wrote:I'm still in my working years, will really suck if T2 decide to forbid, or start taxing heavily CCPC's. It's a great way to defer tax, not like I'm avoiding tax at all. Sucks to be a victim of the tyranny of majority.
We have always had difficulty recruiting medical staff for rural and remote parts of Canada especially in the North.The younger doctors are increasingly female and both male and female are tending to choose lifestyle over all else and rarely work the hours we older ones used to work.We have an aging population requiring more medical services everywhere and the government is going to choose this time to remove one of the few incentives to work harder and longer hours ? what could possibly go wrong? :roll:
Good objectives but seems to me the CCPC tax rules are a very blunt instrument to accomplish these goals. We should just pay doctors a fair comp.
User avatar
ghariton
Veteran Contributor
Veteran Contributor
Posts: 15954
Joined: 18 Feb 2005 18:59
Location: Ottawa

Re: Federal budget 2016

Post by ghariton »

SQRT wrote:Good objectives but seems to me the CCPC tax rules are a very blunt instrument to accomplish these goals. We should just pay doctors a fair comp.
Yes indeed. Unfortunately, fees paid by governments show up as visible expenditures at budget time. By contrast, tax breaks or expenditures are invisible. You have to dig into Finance Canada's report on tax expenditures.

So for governments who are trying to seem responsible by getting spending under control, it's a no-brainer.

George
The juice is worth the squeeze
User avatar
ghariton
Veteran Contributor
Veteran Contributor
Posts: 15954
Joined: 18 Feb 2005 18:59
Location: Ottawa

Re: Federal budget 2016

Post by ghariton »

ig17 wrote:It's the envy of the rest of Canada and, dare I say, the envy of the entire world. 8)
No, that would be Greece.

I hadn't realized that the deficits forecast by Mr. Morneau were baseline and didn't include all the proposed spending by the Liberals. I guess they still have a month to scale back. If not, we are looking at a deficit next year north of $30 billion. At those levels, and especially if there is a rising trend, even S & P and Moody's might sit up and take notice.

I do have question. Mr. Morneau 's scenarios are based on an assumption of $40 oil. But what does the $40 refer to -- Brent, or the price that western Canadian oil producers actually get, which I understand to currently be in the vicinity of $20?

George
The juice is worth the squeeze
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33398
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: Federal budget 2016

Post by AltaRed »

Hence the reason why I believe we are headed for stagflation. The loonie will suffer at the hands of such a deficit (federal plus select key provinces) causing inflation and all that wasteful spend on 'don't worry, be happy' will hardly move the needle on GDP growth. Perhaps a few tenths of a point. Between Trudeau, Wynne and Notley, I believe we are in for quite a ride.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
izzy
Veteran Contributor
Veteran Contributor
Posts: 3019
Joined: 19 Feb 2005 19:06
Location: Winnipeg MB

Re: Federal budget 2016

Post by izzy »

SQRT wrote:
izzy wrote: We have always had difficulty recruiting medical staff for rural and remote parts of Canada especially in the North.The younger doctors are increasingly female and both male and female are tending to choose lifestyle over all else and rarely work the hours we older ones used to work.We have an aging population requiring more medical services everywhere and the government is going to choose this time to remove one of the few incentives to work harder and longer hours ? what could possibly go wrong? :roll:
Good objectives but seems to me the CCPC tax rules are a very blunt instrument to accomplish these goals. We should just pay doctors a fair comp.
The problem is that if you pay an extra $100,000 and take back $60,000 in tax it provides little incentive to practice where your family expenses are higher than in the city by more than the remaining $40,000.A greater incentive is the possibility of being able to retire or specialize earlier as a result of leaving money in a CCPC during a few years of working your butt off.It's no coincidence that female physicians are rare in rural practice and that most such positions are held by immigrants whose wives can't wait until they can relocate to the city before their children enter secondary school.
"I disagree strongly with what you say, but I will defend to the death your right to say it."
brucecohen
Veteran Contributor
Veteran Contributor
Posts: 13310
Joined: 20 Feb 2005 16:47

Re: Federal budget 2016

Post by brucecohen »

Here is the view of the 3D Policy guys who, before retirement, were senior Finance officials drafting budgets for both Liberal and Conservative govts.
Finance Minister Morneau and Prime Minister Trudeau have finally admitted that the upcoming deficit will exceed $10 billion and that the deficit will not be eliminated over the next four years. Deficit elimination is no longer a short-term fiscal target for the Liberal government, but a “long term” issue.

Thank God the government has finally got the obvious out of the way. The Finance Minister is facing a very precarious global economy as he plans his budget. Financial markets are in a state of uncertainty not seen since 2009. The global economy is slowing. Bond markets are signaling the possibility of a global recession in the next twelve to eighteen months.

Given this extremely fragile economic and financial outlook, deficit elimination in four years would have been a major policy mistake.

What is the right fiscal policy anchor in these circumstances? The Finance Minister still remains committed to implementing a medium-term fiscal policy that will maintain a stable or declining debt/GDP ratio over the next four years. That is his fiscal anchor. Currently the federal debt is around 31 per cent of GDP, slightly higher than in 2008-09 before the financial crisis and not much higher than it was over thirty years ago.

Few people appear to understand what this means.

In order to maintain a stable debt ratio over the next four years, the growth of the debt must be the same as the growth in the economy. Based on the November 2015 Update, this means that the deficit must be no higher than $22 billion in 2016-17 and around $30 billion for each of the next four years (about 1.5% of GDP). Higher deficits would result in the debt growing faster than the economy and a rising debt burden.

Adopting a “stable” debt to GDP ratio as a medium-term fiscal anchor gives the government more needed flexibility in implementing its policy agenda, but there is a sill an upward bound which cannot be broken if fiscal and indeed political credibility are to be maintained. In a previous article we suggested that a deficit between 1.5 and 2 per cent ($40 billion) of GDP would violate the government’s commitment to a stable debt burden.

There are no economic reasons why a “stable” debt burden around 30 per cent is better than a “stable” debt burden around 35 per cent or even 40 per cent. Similarly there are no economic reasons to justify a lower debt ratio of 25 per cent (the Conservative goal).

It just happens that the Liberal government inherited a debt ratio of around 30 per cent and it might be politically difficult to set a higher debt target. A lower debt target would also be problematic, since it would mean rejecting much of the policy platform on which the government got elected.

<snip>
So where does this leave the Finance Minister in planning his first budget? In fact, it leaves him pretty much on his own. He must decide how prudent, risk adverse, and credible he wants to be. In our view, there are two “guiding fiscal principles” that he should adopt in his first budget and in subsequent budgets.

First, make sure in budget planning that the debt level averages around 30 per cent of GDP (roughly where it is now) over the next four years. This would be consistent with running a structural deficit of up to $30 billion, or just under 1.5 per cent of GDP and should be more than enough to implement a carefully managed political agenda. This would be acceptable to financial markets and help fiscal credibility.

Our second guiding principle is that if there is a political desire for a larger political agenda and higher spending, it should be financed through revenue increases and/or program cuts, not larger deficits and higher debt. Do not repeat what happened in the 1980s. Some political promises should be financed by current taxpayers and not by future taxpayers.

Having rejected (correctly) deficit elimination as a fiscal planning target, now the government must reaffirm its commitment to a fiscal anchor of a stable debt burden of around 30 per cent of GDP over the next four years.

The government should stick to this anchor “come hell or high water”.
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33398
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: Federal budget 2016

Post by AltaRed »

The problem I see with this utopian view is there is no room for error if GDP growth does not go as planned (governments are notorious for being over optimistic on GDP growth) and there is no margin for error if a major stimulus is required in another economic crisis. If the piano string is kept that tight, there is no room to manoeuvre. I don't buy into it.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
trf1066ca
Contributor
Contributor
Posts: 323
Joined: 28 Apr 2012 17:04

Re: Federal budget 2016

Post by trf1066ca »

AltaRed wrote:Hence the reason why I believe we are headed for stagflation. The loonie will suffer at the hands of such a deficit (federal plus select key provinces) causing inflation...
Heheh. How quaint.

Seriously. You think that in a world awash in goods and unused productive capacity and labour, a world of stagnant global demand and growth, and an increasing number of of central banks smashing through the zero-bound and into negative interest rates in an increasingly desperate attempt to spur investment and spending... In that reality, you are afraid that the boogeyman on the horizon is inflation???

Any. Day. Now.

Although I see this particular confusion has a long-standing pedigree hereabouts. For instance, searching on "massive inflation" finds that there is an entire several hundred comment thread dedicated to the subject**, begun in 2010 2008** (earlier additional edition of ~equal length, before it became ever more "obvious" in 2010...). How is that going so far?

** added - those threads are hilarious to read. Everyone is so serious and sure. And wrong. But apparently some are willing to come back for more.
Last edited by trf1066ca on 23 Feb 2016 15:34, edited 1 time in total.
Post Reply