EY - Federal budget 2015-16

Federal budget 2015-16

A balanced budget, low-tax plan for jobs, growth and security

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“Mr. Speaker, I am proud to present Economic Action Plan 2015 — our government’s plan for growth and opportunity. It is a prudent and principled plan that will see Canadians more prosperous, more secure, and ever more confident in our country’s place in the world.

“I am proud to announce this budget is balanced. This year, we are forecasting a $1.4 billion surplus, and growing surpluses thereafter.”

Federal Finance Minister Joe Oliver
2015 federal budget speech

Tax policy and economic outlook

On 21 April 2015, federal Finance Minister Joe Oliver tabled his first budget. Continuing the legacy of his predecessor, Jim Flaherty, the budget focuses on creating jobs, supporting growth, keeping taxes low and long-term prosperity across the country. This has been the mantra of the Conservative government’s Economic Action Plans since they took office in 2006. Today’s budget is no exception.

In his budget speech, Oliver states, “Around the world, many nations — including some of our friends and allies — remain mired in a struggle for fiscal security. Global growth coming out of the Great Recession has been lacklustre. Geopolitical uncertainty continues to hobble the recovery. And, of course, the dramatic plunge in oil prices has taken its toll on our economy.

“Still, the news for Canada is, by and large, good. Amid the tumult, our country remains a beacon of economic stability and security built on a foundation of sound financial management.”

Surplus (deficit) and federal debt outlook

Since the November 2014 Update of Economic and Fiscal Projections, the projected budgetary deficit for fiscal 2014-15 has improved slightly, reflecting both the economic outlook and the timing of government cost control. However, relative to Budget 2014, the future projected budgetary surplus has decreased in every year of the forecast horizon. This is a result of the impact of the 30 October 2014 personal tax announcements (family tax cut, enhancements to the universal child care benefit and increase in the child care expense deduction).

Table A

Projections of federal surplus (deficit) and debt
 
Surplus (deficit) outlook
 

Federal debt
 
  $billion $billion % of GDP
2014–15 (2.0) 616.0 31.2
2015–16 1.4 617.0 30.8
2016–17 1.7 615.3 29.3
2017–18 2.6 612.6 27.9
2018–19 2.6 610.1 26.7
2019–20 4.8 605.2 25.5

Note: Totals may not add due to rounding.

As set out in Table A, the latest government projections call for a return to a budget surplus in fiscal 2015–16 and in each subsequent year of the forecast period. Measured in relation to the size of the economy, the federal debt is expected to decline to 25.5% of gross domestic product (GDP) by 2019-20.

Based on projected budget surpluses, the federal debt-to-GDP ratio is expected to fall to below its pre-recession level by 2017–18. Canada’s total government net debt-to-GDP ratio remains the lowest in the G7.

Canada is also on track to achieve the target, announced on 5 September 2013 at the G20 Leaders’ Summit in St. Petersburg, Russia, of reducing the federal debt-to-GDP ratio to 25% by 2021. In November 2014, the International Monetary Fund estimated that Canada’s total government net debt-to-GDP ratio is the lowest, by far, of any G7 country: Canada 38.6%, Germany 53.9%, US 80.8%, UK 83.9%, France 88.1%, Italy 114.3% and Japan 137.8%.

Budgetary scorecard

As new economic data become available, the government continues to refine and update its forecasts for the return to a balanced budget. These forecasts provide insightful information on the growth in revenue, increases and decreases in transfer payments and program expenditures, and interest on the national debt.

In Table B, we summarize the deficit projections for fiscal 2015 and fiscal 2016, including two updates to fiscal 2015 (the final fiscal 2015 accounts will be released in the fall 2015 economic update).

The deficit for fiscal 2015 is now projected to be $2 billion, down from the earlier estimates of $2.9 billion in February 2014 and November 2014. While projected program expenditures have increased by $4.4 billion, this increase has been offset by a modest increase in revenue and lower debt-servicing costs.

The budget surplus for fiscal 2016 is projected to be $1.4 billion, down from the $1.9-billion projection in November 2014 and down from the $6.4-billion projection in February 2014.

Table B

Projections of federal budgetary surplus (deficit)
$billions
 

Budget
2014

Nov. 2014
Update

April 2015
Update

Budget
2015

F2014–15

F2014–15

F2014–15

F2015–16

Revenue outlook

 

   

 

Income taxes

 

   

 

Personal

137.8

134.2

134.2

143.4

Corporate

37.0

38.3

37.9

36.8

Nonresident

5.7

6.4

6.4

6.2

Excise taxes

 

 
 
 

GST

31.3

31.8

31.5

32.7

Customs

4.4

4.5

4.5

4.9

Other taxes/duties

11.3

11.5

11.4

11.4

EI premiums

22.7

22.6

22.6

23.1

Other revenues

26.2

28.3

30.9

31.7

 

276.3

277.6

279.3

290.3

Program expenses outlook

 

 
 
 

Major transfers to persons

 

 
 
 

Elderly benefits

(43.8)

(43.9)

(43.7)

(45.7)

EI benefits

(17.7)

(17.6)

(17.8)

(18.4)

Children’s benefits

(13.2)

(14.5)

(14.2)

(18.0)

Major transfers to other levels of gov’t

(62.6)

(62.6)

(62.8)

(65.4)

Direct program expenses

(113.0)

(114.1)

(116.1)

(115.8)

 

(250.2)

(252.7)

(254.6)

(263.2)

Public debt charges

(29.0)

(27.7)

(26.7)

(25.7)

 

 

 
 
 

Surplus (deficit) outlook

(2.9)

(2.9)

(2.0)

1.4

Note: Totals may not add due to rounding.

Budget 2015 measures

The government’s projections of the impact of the income tax measures introduced in today’s budget are relatively modest (Table C).

Individuals will benefit from the enhanced tax-free savings account annual contribution limit, and seniors from increased flexibility regarding withdrawals from registered retirement income funds. Small business owners benefit from the reduction in the corporate tax rate; however, this is partially offset by higher personal tax on dividends out of small-business earnings.

Table C

Budget 2015 measures
$millions
  2015-16

 
2016- 17

 
2017-18

 
2018-19

 
2019-20
 
TFSA 85 160 235 295 360
RRIF 140 120 120 135 145
Small-business tax rate reduction 2 415 1,010 1,515 2,060
Adjustment to dividend tax credit (45) (235) (470) (670) (845)
M&P CCA -- 120 310 360 325
Synthetic equity arrangements -- (365) (310) (280) (280)

Canadian manufacturing and processing corporations will benefit from the extension of the accelerated write-off of manufacturing and processing equipment.

Modifications to the dividend rental arrangement rules would deny a deduction for an inter-corporate dividend on a share in respect of which there is a “synthetic equity arrangement.”