Trudeau hiked deficit rather than tax the rich
By John Twigg
One of the more interesting features of the Federal Budget 2016 is that a week after it was presented there was still a lively debate going on in mainstream and social media about just what is or isn't in it and whether those things are good or bad.
One of the first insiders to analyze the budget was Quebec-based journalist Chantal Hebert in a special spot on CBC-TV with Peter Mansbridge and Andrew Coyne and she surmised that it was "one of those budgets that won't be able to be properly evaluated until years afterwards" and that has already proven to be quite true.
Coyne's analysis was somewhat more political, quipping that it was/is a throwback to the 1970s and 1980s when of course Prime Minister Justin Trudeau's father Pierre Trudeau was in power and beginning a spending spree on liberal Liberal programs like Opportunities for Youth (a job creation and work experience program that in that day was seen as radical and even a bit profligate - though it did yield some surprising benefits).
As my first blog on this budget noted here , the leaders of the two main Opposition parties both gave somewhat extremist and exaggeratedly-negative views of it, while Green Party leader Elizabeth May generally liked it, and since then the debate has raged on in headlines, op-ed pieces, social media, academia, business, lobby and policy groups and apparently quite a few other venues.
Is there a consensus now? Was the budget good or bad? Too much wasteful spending such as on First Nations? Not enough on municipal infrastructure? More style and hype than numbers and substance??
Budget defended itself
The answer is seen in the reaction of Trudeau: he's not having to run around defending his first budget and putting out fires against it in boardrooms and editorial offices.It's a bit like how he said before and during the election campaign (the latter in Tory ads) that economic growth will enable the budget to "balance itself"; now we're seeing that the budget can defend itself too!
Thus Trudeau instead has been busy on international relations and today (Tuesday March 29) he is making time to attend a conference in Calgary on Employment Insurance reforms. No sign of panic anywhere.
First, it's clear now that the uptick in spending of about 1.5% is not going to bankrupt the government and over time will be quite manageable; that was the initial claim of rookie Finance Minister Bill Morneau and it was supported in a new analysis for Maclean's magazine by well-regarded Vancouver economist Kevin Milligan, viewable here.
"So, the 2016 budget does not put us on the road to 1995. We are not on the road. We are not in the car. We have not even put on our shoes, had breakfast, or gotten out of bed," wrote Milligan, offering long-term graphs to make his point that eventually growth will surpass the added debt and the ratio will flatten out.
Deficit misread jeopardizes Mulcair's job
Though the deficit of about $30 billion is about three times larger than what Trudeau promised during the election campaign it still is not outlandish and that is one reason why federal NDP leader Tom Mulcair is now leader of the third party in Parliament and is fighting for his political life at a leadership convention in Edmonton starting April 8, an excellent analysis of which by Bill Tieleman is on The Tyee here . (It's now widely seen that Mulcair blew it when he took a Harper-like fiscal-conservative approach against Trudeau's campaign promise of some deficit spending, with Trudeau revealing that he told his wife within hours of that event that they were going to win the election because of it.)
Indeed the real flaw in Trudeau's budget may be that the increased spending will not be enough to stimulate growth and that even more new spending, especially on municipal infrastructure, may be needed in years ahead, and hopefully Trudeau's interest in employment reforms is a signal that more brave programs will ensue in years ahead, maybe even a new-century version of OFY, Katimavik and other "Trudeaupian" innovations (to borrow a cute label made up by Mark Steyn at http://www.steynonline.com/).
That view - of insufficient funding for infrastructure - is advanced in a column by the Ottawa Citizen's Tom Parkin that was retweeted Monday by Andrew Coyne and viewable here and of course that view is shared by big-city mayors such as Gregor Robertson of Vancouver who want more federal money for transit, and if they have to label that as an investment in green initiatives then they will do so and won't quibble.
Feds boost share of public projects to 50%
Certainly one of the key things that emerged after a week of cogitation is that the Trudeau government's move to cost-share such projects up to 50% (raised from 33% under Conservative Stephen Harper) is a major psychological shift that also has real financial benefits too, maybe better enabling iffy projects such as Surrey's transit dreams, Port Metro Vancouver's wishes for a huge bridge to replace the Massey Tunnel and Robertson's hopes for a subway line towards the University of B.C., probably among many others possibly even Greater Victoria's long-troubled efforts to build a better sewage treatment system.I tend to agree that young Trudeau's first budget really was only a sort of opening statement that was amazingly well done in many ways, with new benefits here and there for almost all interest groups from young families with kids to seniors on pensions (who see the OAS start returned to age 65), and lots of shifts into better directions (see the many tweaks in the tax system, below), many more symbolic than substantive, but overall really well done for such a young regime full of novice politicians. Let's hope it continues!
However numerous items were omitted too, such as lifetime pensions for injured military veterans, higher health transfers for provinces, action on housing (there's a study coming), and notably how there will not be adequate supervision of the approximately $8.4 billion dedicated over several years to improving water systems, housing and education on Indian Reserves where the Trudeau Liberals apparently will also back away from the Harper regime's requirement of transparency on all First Nations finances (which in my opinion probably is a mistake on Trudeau's part).
There were several moves targetted at upper-income taxpayers, such as removing the income-splitting useful to high-income families, removing a tax exemption on properties donated to charities, and other moves reported here by the Financial Post and others by Business in Vancouver below.
But what they didn't do was close a supposed loophole in which corporate executives can avoid some income taxes by taking some pay as stock options instead of cash. And nor did they make money available to hire a whole bunch more tax auditors to clamp down on evasions.
One report suggested that the wealthiest 1% of taxpayers will see their taxes go up about 30% but that sounds like a bit too much of a generality, it doesn't say whether the starting base is large or small, and it may not account for the wealthier taxpayers' disproportionate abilities to purchase tax-avoidance schemes available only to sophisticated investors (e.g. flowing income through a life insurance filter).
Trudeau hiked deficit instead of taxing the rich
In fact my research indicates that what Justin Trudeau really did in his first budget was decide to NOT tax the rich right away and instead to run up the deficit!Politically and administratively that probably was a smart move by Trudeau which will tend to keep taxpayers at home (apart from guys like billionaire Calgarian Murray Edwards who just evac'd to London here ), it avoids wars with forces he couldn't win against (old-money moguls, many based in London) and instead it shifts the policy debates towards where they really belong: how to grow the economy, boost the middle class and raise overall quality of life.
And it shouldn't go unmentioned that Trudeau did a major restoration of funding to the CBC, he allocated $2 billion to lowering carbon emissions, he found new money for social infrastructure, he spoke in support of Bombardier (which is seeking another billion-dollar bailout), he restored tax credits for labour-sponsored investment funds, and he let Morneau tweak the tax treatment (tariffs) on foreign-made ferries that will save B.C. Ferries about $50 million.
Trudeau regime are moderate centrists
There are many more such details that of course could be mentioned too but the key gist is that the Justin Trudeau Liberals have staked out the ground of moderate centrists trying to appeal to almost all corners, and after the Harper Conservatives' pandering to special slices of society that's a welcome change.Now we will see studies of complex topics such as abuses by foreign flippers in Vancouver's over-heated housing market, what should be done with the National Energy Board, how Canada's retirement policies could be improved and how the tax code could be - how shall we say it? - updated?
I'm hoping that the new openness towards policy debates will open up issues such as redefining the money supply and the GDP to include unpaid work and underground industries, reviewing whether too much government work is being outsourced to private-sector consultants at inflated prices, and what better things could be done to increase work-experience and employment opportunities for low-income and low-skilled workers - especially on and for First Nations.
The billions of new dollars going towards First Nations is a prime example: goodness knows the water, housing and education improvements are badly needed and overdue but how can that be done to maximum advantage when obviously writing blank cheques without accountability and transparency has been disastrous in the past, so is there a better way? Maybe with private-sector contractors required to also turn the projects into work-experience and skills-training opportunities for First Nations people?
In other words, can good reforms be implemented in ways that work better and provide lasting dividends? We'll soon see.
That's especially the case with marijuana policy, which was very present during the campaign (in which Trudeau again was more progressive and populist and brave than Mulcair) but it was absent from the Throne Speech and absent from the budget even though as a new industry it could generate billions of dollars in economic activity and tax remittances that formerly were underground and criminalized.
But there is lots more like that which is yet to come too, e.g. energy policy, environment policy, water exports policy, science, governance, technology, food . . . but stylistically young Trudeau has made a brilliant start, much to the surprise of his many detractors.
Now if we can just keep him out of the clutches of the old-money global monopolists and Wall Street sharks and get him to revive the Bank of Canada's power to issue its own money instead of buying it from the global banking cartel then we as a nation could really start becoming a great beacon to the world.
Meanwhile here's the propaganda video from the Liberal Party of Canada: Liberal Party video
and then several items and links from Business in Vancouver regarding tax changes:
feedback welcome in comments or by email to john@johntwigg.com
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Federal budget closes a tax loophole popular with high-net-worth Canadians
Canadians will no longer be able to hold investment income, taxed at the small business rate, in a private corporation - BiV
The Liberal budget will close a loophole many high-net-worth
Canadians had been using to get a much lower tax rate on investment
income.
Canadian controlled private corporations (CCPCs) are often set up by doctors, lawyers and other professionals. Under current rules, income inside a CCPC is taxed at the small business tax rate of $10.5%. The budget commits to "ensure that investment income derived from an associated corporation’s active business is ineligible for the small business deduction (and taxed at the general corporate income tax rate) in certain circumstances."
“Active versus passive [investment] income is an important area to clamp down on,” said Lindsay Tedds, an economics professor at the University of Victoria who studies taxation.
“We should have been doing it a long time ago.”
Tedds said it is unknown how common the practice of shielding investment income inside CCPCs is, but “we know it’s significant enough that it’s a budget item.”
Another loophole that was not addressed in the budget is the practice of designating spouses as shareholders, which means they are able to receive funds they themselves didn’t generate, said Kevin Milligan, a professor of economics at the University of British Columbia.
“Doctors and dentists will make their spouse a shareholder, you can pay them dividends of $40,000 a year before you pay taxes on it,” he said. “There’s an estimate that it costs the government $500 million a year.”
The budget also promises to get rid of loopholes currently in the system that allow CCPC owners to get the lower small business tax rate on separate $500,000 batches of money (the revenue limit for the small business rate), and another loophole that allows “private corporations to use a life insurance policy to distribute amounts tax-free that would otherwise be taxable.”
Cracking down on taxation compliance goes along with the budget’s emphasis on reducing income inequality. The restructured Child Tax Benefit — which is estimated will lift a third of low-income families with children out of poverty — and higher income tax rate for earners who make over $200,000 are important planks in that strategy, Milligan said.
But as income inequality has risen across developed economies over the past three decades, corporations and wealthy people have also become increasingly adept at shielding income from taxation.
The budget earmarks $444 million over five years for the CRA’s compliance and enforcement efforts.
Tedds said there is more to be done in recovering tax revenues. Increasing third-party reporting — for instance, when a workers’ employer reports how much that worker makes to Canada Revenue Agency — could be extended to areas like tips and rental income.
She noted that there used to be a tax credit for renters, which required the renter to state their address and the name of their landlord, effectively letting CRA cross-check who should be reporting rental income.
“The [Organization for Economic Cooperation and Development] has been saying this for a long time that Canada lags the world in the amount of income subject to third party reporting and withholding,” she said.
The government backed off a previous pledge to tax stock options higher out of fear it would hurt the tech industry. But Milligan said most stock options go to executives at large companies, not employees who take a pay cut to work at a scrappy tech startup.
“I don’t understand why you couldn't separate out the tech industry guys from the big established executive guys,” he said.
Many economists have called for the removal of “boutique” tax credits, often used to target specific consituents, but Tedds said the budget doesn’t do very well on this front. While the Liberals have removed the Children’s Fitness and Art Tax Credits, it introduced another for teachers who buy school supplies.
While the Liberals have promised a parliamentary review of the tax system, Tedds said a complete overhaul done by an independent commission is needed.
“It’s 2016 – we have not overhauled our tax system in 60 years,” she said. “The world is different, our economy is different.”
CORRECTION: An earlier version of this story stated that income in a CCPC would be taxed at the small business rate, compared to the income tax rate. The budget states that the government will: "ensure that investment income derived from an associated corporation’s active business is ineligible for the small business deduction (and taxed at the general corporate income tax rate) in certain circumstances."
jstdenis@biv.com
Canadian controlled private corporations (CCPCs) are often set up by doctors, lawyers and other professionals. Under current rules, income inside a CCPC is taxed at the small business tax rate of $10.5%. The budget commits to "ensure that investment income derived from an associated corporation’s active business is ineligible for the small business deduction (and taxed at the general corporate income tax rate) in certain circumstances."
“Active versus passive [investment] income is an important area to clamp down on,” said Lindsay Tedds, an economics professor at the University of Victoria who studies taxation.
“We should have been doing it a long time ago.”
Tedds said it is unknown how common the practice of shielding investment income inside CCPCs is, but “we know it’s significant enough that it’s a budget item.”
Another loophole that was not addressed in the budget is the practice of designating spouses as shareholders, which means they are able to receive funds they themselves didn’t generate, said Kevin Milligan, a professor of economics at the University of British Columbia.
“Doctors and dentists will make their spouse a shareholder, you can pay them dividends of $40,000 a year before you pay taxes on it,” he said. “There’s an estimate that it costs the government $500 million a year.”
The budget also promises to get rid of loopholes currently in the system that allow CCPC owners to get the lower small business tax rate on separate $500,000 batches of money (the revenue limit for the small business rate), and another loophole that allows “private corporations to use a life insurance policy to distribute amounts tax-free that would otherwise be taxable.”
Cracking down on taxation compliance goes along with the budget’s emphasis on reducing income inequality. The restructured Child Tax Benefit — which is estimated will lift a third of low-income families with children out of poverty — and higher income tax rate for earners who make over $200,000 are important planks in that strategy, Milligan said.
But as income inequality has risen across developed economies over the past three decades, corporations and wealthy people have also become increasingly adept at shielding income from taxation.
The budget earmarks $444 million over five years for the CRA’s compliance and enforcement efforts.
Tedds said there is more to be done in recovering tax revenues. Increasing third-party reporting — for instance, when a workers’ employer reports how much that worker makes to Canada Revenue Agency — could be extended to areas like tips and rental income.
She noted that there used to be a tax credit for renters, which required the renter to state their address and the name of their landlord, effectively letting CRA cross-check who should be reporting rental income.
“The [Organization for Economic Cooperation and Development] has been saying this for a long time that Canada lags the world in the amount of income subject to third party reporting and withholding,” she said.
The government backed off a previous pledge to tax stock options higher out of fear it would hurt the tech industry. But Milligan said most stock options go to executives at large companies, not employees who take a pay cut to work at a scrappy tech startup.
“I don’t understand why you couldn't separate out the tech industry guys from the big established executive guys,” he said.
Many economists have called for the removal of “boutique” tax credits, often used to target specific consituents, but Tedds said the budget doesn’t do very well on this front. While the Liberals have removed the Children’s Fitness and Art Tax Credits, it introduced another for teachers who buy school supplies.
While the Liberals have promised a parliamentary review of the tax system, Tedds said a complete overhaul done by an independent commission is needed.
“It’s 2016 – we have not overhauled our tax system in 60 years,” she said. “The world is different, our economy is different.”
CORRECTION: An earlier version of this story stated that income in a CCPC would be taxed at the small business rate, compared to the income tax rate. The budget states that the government will: "ensure that investment income derived from an associated corporation’s active business is ineligible for the small business deduction (and taxed at the general corporate income tax rate) in certain circumstances."
jstdenis@biv.com
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Steady economic growth forecast for Canada in 2016: TD
BiV budget bits
Growing Canada's middle class, improving living standards on First Nations reserves and investing in the clean economy are the main pillars of the Justin Trudeau Liberal government’s first budget, which was unveiled on March 22.
Highlights that will affect B.C. and its business community
Targeted funding
•$32 million over two years for
the Vancouver-based Centre for Drug Research and Development, a drug
development and commercialization centre that helps biotechs and
universities commercialize new drug discoveries.
•$212 million toward Metro
Vancouver’s $700 million Lions Gate Wastewater Treatment Plant. The
50-year-old primary treatment plant will be upgraded to provide
secondary treatment.
•$460 million for public transit infrastructure in B.C.
•$73 million for 57 community
infrastructure projects in the province, including drinking water and
waste-water treatment, recreation and culture projects, roads and
bridges and upgrades to the Smithers Regional Airport.
Other spending that could trickle down to B.C.
•$1 billion over four years,
starting in 2017, to foster investment in clean technology in the
forestry, fisheries, mining, energy and agriculture sectors.
•$87 million over two years to support research in forestry, mining, earth sciences, mapping and energy technologies.
•$62.5 million over two years in
funding to Natural Resources Canada (NRC) to build more electric
vehicle, hydrogen and natural gas fuelling stations.
•$50 million to NRC for technology investments that reduce greenhouse gas emissions from the oil and gas sector.
•$2.9 billion over five years to
address climate change and pollution, including emissions reduction
initiatives in the energy sector and transportation.
•$237 million to Genome Canada,
an umbrella group for seven provincial centres, including Genome BC,
which provides genomics-based research funding.
•$130 million over five years to support clean-technology research development.
•$14 million over two years for
Mitacs’ Globalink program. Mitacs links business with universities,
allowing them to tap the scientific expertise of graduates. Globalink
provides
funding allowing researchers to travel and conduct research in other countries.
Resource sector
The federal budget provides a
one-year extension of the mineral exploration tax credit, which was
slated to end this year. The tax credit allows exploration companies to
pass tax credits onto shareholders through flow-through shares.
Tax reforms scrapped and restored
The 2015 Conservative budget
included a new income tax exemption on capital gains when the proceeds
from the sale of real estate or shares were donated to charity. That
exemption has been scrapped.
A 15% tax credit for investment
in labour-sponsored venture capital corporations that allows small and
medium-sized business to access venture capital was to be phased out in
2016. The 2016 budget restores the tax credit. •----
Reversing Conservative changes regarding citizenship for investor immigrants to make it easier for them again
immigrant investors
Easier rules for family reunification will add about 80,000 people to Canada's population
more immigrants
seems fair given Canada's open arms to 25,000 Syrian refugees
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Changes needed inside National Energy Board
http://www.nationalobserver.com/2016/03/24/news/bad-morale-rocked-canadas-pipeline-watchdog-then-came-murder
NEB morale
NEB media plan
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