Mixed Reaction To Canadian Budget

by Mike Godfrey, Tax-News.com, Washington

08 June 2011

Canada's Budget has met with mixed reaction, with members of the business community offering measured praise, while opposition parties have rejected its 'tax giveaways' in particular.

The Budget was, in large measure, a straightforward re-tabling of the document blocked by the dissolution of parliament in March. It has, accordingly, been recognized as such, and called both a "carbon copy" and a "deja vu Budget". It sets 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 June 6 Budget retains the same title as its predecessor: 'The Next Phase of Canada's Economic Action Plan - A Low-Tax Plan for Jobs and Growth'. According to the Canadian Institute of Chartered Accountants (CICA), which had previously argued the March Budget struck "the right balance by keeping Canada competitive and demonstrating prudent fiscal management", no real surprises were sprung. Instead, Finance Minister Jim Flaherty's proposals keep the country heading in the right direction, with deficit reduction measures described as sensible.

In addition, Deloitte has commended Flaherty for remaining on course with planned corporate tax reductions. Andrew W. Dunn, tax partner, said this "sends a signal that Canada is friendly to investment - both foreign and domestic". The small business elements of the Budget also attracted commendation, from the Canadian Federation of Independent Businesses. It expressed pleasure at the priority given to the Employment Insurance Hiring Credit for Small Businesses, which it argues will be a major help to small firms in growing their workforce.

Nonetheless, the tax credits announced by Flaherty have received criticism. Measures such as a Gas Tax Fund, a Family Caregiver Tax Credit, a Children’s Arts Tax Credit and a Volunteer Firefighters Tax Credit were introduced, and CICA has warned that, going forward, targeted tax benefits will only add to complexity and inefficiency in the tax system. Consequently, issues such as tax complexity are seen as needing addressing, and Flaherty is urged to create a more competitive, simpler and efficient system. Such concerns were echoed by Deloitte, with Dunn alleging that the Budget failed to adequately address competitiveness. He suggests that future Budgets modify the personal tax system, in order to attract highly skilled professionals who can contribute to the economy.

From the point of view of opposition parties, the Budget contained the same shortcomings as before. The NDP, recently inaugurated as Canada's official opposition party, has reiterated the issues it finds with Flaherty's tax measures. According to leader Jack Layton, "this continued emphasis on tax giveaways to the most profitable corporations over targeted job creation is not what Canadian families need right now", and he said money would be drawn away from vital services, such as health care.

The Liberal party, which suffered a heavy defeat at the polls on May 2, said it could not support the Budget. Interim leader Bob Raw called it a "re-hash", and argued it showed complacency, contained no new ideas, and failed to seize the opportunity to provide a meaningful agenda for long-term prosperity.

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