Deficit Spending: It Should Be Discussed with Your Clients
The Department of Finance has once again released the Fiscal Monitor, this time for the four months ending July 2009,announcing a deficit of $18.3 billion for the first quarter of the 2009-10 fiscal year, compared to a surplus of $2.9 billion for the same period a year ago.
However, this deficit is on target with updated projections reflecting a weaker fiscal outlook than forecast in the January 2009 Budget. The projected combined deficit spending for the period 2008 ñ 2012 has gone from an estimated balance of $84.9 billion in January 2009 to a staggering $153.8 billion as an estimated deficit in the Update of Economic and Fiscal Projections released in September 2009. The summary of changes table from the report is reproduced below:
|
Department of Finance
Summary of Changes in the Fiscal Outlook Since the January 2009 Budget |
|
|
2008ñ2009 |
2009ñ2010 |
2010ñ2011 |
2011ñ2012 |
2012ñ2013 |
2013ñ2014 |
2014ñ15 |
|
|
|
(billions of dollars) |
|
January 2009 Budgetary Balance |
-1.1 |
-33.7 |
-29.8 |
-13.0 |
-7.3 |
0.7 |
n/a |
|
Impact of Economic and
Fiscal Developments |
|
|
Budgetary revenues |
-3.3 |
-8.3 |
-6.8 |
-8.5 |
-7.8 |
-9.6 |
|
|
Program expenses1 |
|
|
Employment Insurance |
-0.7 |
-3.2 |
-3.1 |
-2.5 |
-1.6 |
-0.6 |
|
|
Policy Measures |
0.0 |
-9.4 |
-4.4 |
-2.0 |
0.0 |
0.0 |
|
|
Lapse |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
1.5 |
|
|
Economic and other Changes |
-0.4 |
-0.2 |
-0.7 |
-0.9 |
-0.7 |
-0.7 |
|
|
|
|
Total program expenses |
-1.1 |
-12.8 |
-8.2 |
-5.4 |
-2.3 |
0.2 |
|
|
Public debt charges |
-0.3 |
-1.2 |
-0.4 |
-0.5 |
-2.0 |
-2.5 |
|
|
Total Economic and Fiscal Developments |
-4.7 |
-22.2 |
-15.4 |
-14.4 |
-12.1 |
-11.9 |
|
|
Revised Budgetary Balance |
-5.8 |
-55.9 |
-45.3 |
-27.4 |
-19.4 |
-11.2 |
-5.2 |
|
|
|
1A positive number implies a decrease in spending and an improvement in the budgetary balance. A negative number implies an increase in spending and a deterioration in the budgetary balance.
Note: Totals may not add due to rounding. |
In addition to the increased deficit by the end of the 2012 fiscal year, the projected deficit spending is expected to continue and a surplus balanced budget by 2014 is no longer in the forecast. The continuing budget deficits are in the wake of eleven consecutive years of balanced budgets.
The month of July 2009 alone produced a deficit of $5.8 billion, a result of the weakened economy and the tax measures brought in under the Economic Action Plan. $5.1 billion was spent on program expenses due to an increase in Employment Insurance (EI) payments and monetary support for those suffering in the motor vehicle manufacturing areas.
What does this mean to the average Canadian?
These deficits will require taxpayers to ask hard questions, not only about the financial state of the nation, but about their own ability to fund retirement income and health care costs, if governments are stretched by new financing costs.
By the year 2011, the first boomers will reach age 65. According to Infrastructure Canada, those age 65 and over are the most intensive users of the health care system, a financing burden yet to come for Canadian governments.
Will today's deficitsócreate by the financial stimulus world leaders have created to avoid further financial disaster--become the taxes of tomorrow? Likely. In Canada, where baby boomers make up approximately one-third of our population and just under 50% of the tax filers, these circumstances are serious and require careful planning. The questions for tax and financial advisors and their clients to ponder are:<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com🏢office" />
1. To what extent will increased taxationóand the potential for inflation--erode future purchasing power of retirement savings?
2. How can current tax and investment strategies anticipate and plan for these obstacles?
Other questions to consider by those planning to retire shortly are:
1. What effects will deficit spending today have on public pensions and the health care system?
2. How will deficit spending affect the taxation of wealth transition in the future?
3. How will incomes of boomer offspring fare in their stewardship of the boomerís wealth on an after-tax basis?
Educational Resources: Now is therefore a good time to revisit retirement income plans, family succession and estate plans in an attempt to better understand financial needs for a future, which could certainly include tax increases on both income and capital. To learn more consider the following Educational Resources:
Your thoughts on the future outcomes of deficit spending and financial stimulus packages for Canadian taxpayers?
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