Here we are the day after the federal budget landed and those of us not in budget lockup have had a chance to ruminate on the budget document.
I think it is important to remember that these documents are quite challenging to go through. My approach to reviewing this budget was as follows: quickly scan the front matter to get the lay of the land; do a quick Ctrl+F for some key items I was interested in (e.g. exploration expenses, stock option deduction, working income tax benefit); a look at the table of contents to find and read sections of interest; a read of the whole document; and finally worry about the underlying assumptions and technical details of the budget.
By 5pmMT I had done all but the last item. In the five minutes I had before I had to catch my bus home, I tried various words to search for how much of the deficit being booked was due to the contingency. I found nothing and put out a question on twitter. There were some early answers that indicated that indeed this was going to take some time for the experts to piece together. Fortunately, over night the usual folk buried their teeth into the details and have developed well-formed criticism on the lack of transparency in this budget.
In addition, it is clear that there is no real plan to balance the budget. Well, the plan is to grow our way out of the deficit, which given the increase in expenditures outlined in this budget, the gloomy economic forecasts, the lag time for any infrastructure projects to potentially pay off, and the fact that there are four more budgets to go, that plan is akin to
A bit churlish for sure, but growth in four years is not going to offset the growth in expenditures. I imagine given the criticism we will likely see more focused details emerge in the coming year on this point (hint, hint, nudge, nudge).
In terms of what was missing from the budget? There is no movement yet on implementing to platform’s commitment to revising the tax rules about Canadian exploration expenses (CEE). I am not surprised at this as this change is not as simple as the platform made it out to be. I am also happy because I have a paper coming out soon on this particular item and am happy the budget did not render it moot. The government did, though, extend the Mineral Exploration Tax Credit which I was a bit surprised about at first, but then again granting a short one year extension while developing the plan forward on CEE is actually fairly sensible from a political point of view (certainly not from an evidence-based policy point of view, though).
There was also no change to the tax treatment of stock options. It may be that the government may have bowed to the nonsensical pressure from the tech lobby group on this one or it may be that they are still working on the technical details. There is nothing in the budget about a much anticipated pilot or study on guaranteed annual income, to match Ontario’s initiative. There was also no change to the Working Income Tax Benefit. There are other items missing, but overall my sense here is that there are several years left in their mandate and it would be silly to think that all platform items could and would be implemented in the first budget. So I would not yet get to concerned about missing items. That is, there is still hope.
There was some hope that the budget would announce a comprehensive tax review. We did get a little of the way there, in that the government will proceed with reviewing the tax system but only with a view to eliminating poorly targeted and inefficient tax measures. The budget kicked this off with the elimination of the tax credits for child fitness and arts (here, here, and here) along with the tuition and textbook amounts, but then proceeded to introduce similar poorly targeted an inefficient tax measures, namely the LSVCC tax credit and the one directed to teachers for teachers for supplies. With respect to the tax credits for fitness and arts, the credit will be 50% for the 2016 tax year and fully phased out by 2017. This may prompt parents to try to claim some of their 2016 expenses in 2015 (since we are still more than a month away from the filing date); however, I expect that these tax credits will be subject to fairly heavy review for the 2015 tax year and 2016 tax year.
As someone who works in the area of tax compliance, I was giddy with glee to see so many pages dedicated to tax compliance and improving client services at CRA. However, I really did not see anything really novel in here, more of the same ol’stuff (similar to the chapter on innovation, though I am told a novel plan will come next year). One of the best things we can do to improve tax compliance is to increase third party reporting of income and broaden withholding. The OECD has been saying this for years. Yet Canada lags behind many of its sister countries and this budget makes no move to change that. Tax compliance also takes a fair amount of knowledge, and yet CRA’s documents are very much written for and directed to a technical tax audience. CRA needs to improve the plain language communication of tax policy in this country and, again, there is no real move towards that in this budget. In addition, many countries around the world are spearheading efforts to help business activities transition from under to above the table and I see nothing aimed here either.
There is a commitment to improving CRA’s direct correspondence (letters) with tax payers, which is great, but that is not as broad as what I am asking for. In addition, I am not sure if this change in the language of CRA correspondence is also related to the tone, because CRA correspondence is fairly offensive. I am also fairly skeptical of the estimates of how much it will collect in additional tax debt, but I imagine the government knows something in this area that I don’t that will make their estimates true. It will be interesting to watch this, though given how nontransparent this budget document is in many place, I don’t know if I will ever be able to know for sure how this all plays out.
The budget also commits to expanding the community volunteer income tax program along with attempting to notify low-income non-filers about possible tax credits they are missing out on. I hope this include notifying low-income filers and non-filers alike about the free money available to them for the RESP program under the Canada Learning Bond. It is a total of $2000 in funding for a child’s RESP and no requirement to put in of your own money into the RESP. That money is allocated as follows
- $25 to help cover the cost of opening an RESP
- $500 to add to the RESP when it is opened
- And $100 each year until the child turns 15
This money should be automatic for qualifying households, but it is not.
Part of the Liberal platform document was aimed at curtailing the aggressive use of CCPCs and there are some items in this budget related to that. The budget looks to ensure that income qualifying for the small business deduction is active, not passive, income. If you have a CCPC and you don’t know what this means, go talk to your accountant. I know quite a few CCPCs that are running afoul of this rule and now is the time to clean up your act. There are also measures to related to setting up complicated structures to access the small business deduction multiple times, among others. What I see here is the start towards cracking down on the aggressive us of CCPCs but there is still room to move. For example, they are (still) being used to get around the employee for tax purposes rule and I imagine (hope) that will be included in the next phase of compliance items.
In terms of some really cool items in the budget, I love the change in the EI waiting period from two to one week. People have said this was impossible, apparently not! The budget also commits to repealing the existing Capital Cost Allowance regime and replace it with something simpler. This is something I recommended here if you want to read about this. And as expected the budget brings in a richer and simpler child tax benefit system and Jennifer Robson has a great piece all about that. However, I see nothing related to reframing these benefits as family benefits as suggested here by Frances Woolley.
In terms of something I hoped for but did not expect to see was leadership on infertility in this country. I wrote about this here (third from bottom) for Macleans in the lead up to the budget. I look forward to this being discussed in future budgets though. Or better yet, maybe the Department of Finance will approach me about filling the Clifford Clark visiting economist position and this is something we can work on together (a nod is as good as a wink to a blind man).
Overall, the budget has all the makings of a good western: the good, the bad, and the downright ugly. In essence, there is something for everyone to hate.