Canadian Budget May Trigger Election

by Mike Godfrey, Tax-News.com, Washington

25 March 2011

Canada's government has received a decidedly mixed response to its March 22 Budget, garnering support from business groups, but facing opposition from parliamentary rivals, who are now seeking to trigger a federal election.

Finance Minister Jim Flaherty's Budget, titled the "Next Phase of Canada's Action Plan," set out what the government has called a low tax plan for jobs and growth, designed to keep the government on track to return to balanced budgets in the medium-term and "foster the right conditions for long-term economic prosperity." The provisions contained therein have been praised by key business, accountancy and tax groups in the country, the general sentiment being that it continues to aid the process of economic recovery. For instance, accountancy firm Deloitte commended the government for staying the course on scheduled business tax reductions and for laying out plans to balance the budget in three years, as it regards both initiatives as key to Canada’s continued global competitiveness and economic stability.

The Canadian Institute of Chartered Accountants (CICA) responded to the Budget by stating that it "strikes the right balance by keeping Canada competitive and demonstrating prudent fiscal management".

The reiteration of the government's commitment to lowering corporation tax rates has also been welcomed. Deloitte's tax policy leader Albert Baker said this sends "the right signals globally and will help attract businesses and jobs to Canada," a sentiment that was echoed by Bruce Flexman, chairman of the tax policy committee at the CICA, who said the reductions "signal that Canada is serious about attracting business investment."

President and CEO of the Canadian Chamber of Commerce Perrin Beatty was pleased to see the continuance of the low tax plan, as he believes that it "has created a healthy economic environment for business investment, and we applaud the government for staying the course." However, criticism was reserved for the perceived complexity of the existing Canadian tax system. Flexman was displeased that Flaherty did not address this in the Budget, and said eventual simplification is necessary "in order to lessen the burden of compliance".

In addition, the government's commitment to spending restraint, and to a Strategic and Operating Review in 2011-12 was met with measured praise. The Canadian Council of Chief Executives's CEO John Manley believes that this review "will be of critical importance in reaching the government's overall spending targets." He added that "restraining programme spending is a commendable goal, but in reality, many of the roughest decisions have been put off to a future Budget."

Politically, however, comment on the Budget has added to the criticism currently focused on the government, and Prime Minister Stephen Harper in particular. In the weeks leading up to the Budget announcement, the Canadian media had been predicting the likelihood of opposition parties triggering an election through a rejection of the Budget. On March 21, the day before Flaherty delivered his Budget, an report from the Procedure and House Affairs's Committee tabled a report in the House of Commons, recommending that the government be found in contempt of parliament, with charges relating to incomplete disclosure of the costs of prison legislation, corporation tax cuts, and an untendered F-35 fighter jet deal.

The three main opposition parties, the Liberals, NDP and Bloc Quebecois, subsequently voiced their rejection of the Budget itself, yet the government has refused to accept any amendments to it. Liberal leader Michael Ignatieff gave notice on March 23 of his intention to move a no confidence motion against the government, which is expected to be voted on in parliament on March 25. In response, the ruling Conservative party has said that an election will jeapordize the economic recovery, "just as we enter the home stretch".

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