Last Year’s $11.4 Billion Surplus Eclipsed By This Year’s $2.2 Billion Deficit

The Honourable Jim Flaherty, Minister of Finance, released The Fiscal Monitor for March 2009 late last week. One of the highlights, and that is what they called it in the news release, was a budgetary deficit of $3.6 billion in March 2009 compared to a $1.2 billion deficit at the same time in 2008.

The Fiscal Monitor report also points out that in the same period from April 2007 to March 2008 there was a surplus of $11.4 billion. The revenues in the period from April 2008 to March 2009 went down by $9.2 billion (or 3.8%) largely due to a decrease in revenues provided through corporate income tax and goods and services tax. Higher transfer payments caused program expenses to increase through this same period by $6.8 million.

What does this mean?

As discussed in a Breaking Tax and Investment News editorial issued after the 2009 Federal Budget release, today's deficits will surely become the taxes of tomorrow. The trend of large deficits are of particular significance to the ten million or so baby boomers who make up approximately one-third of our population and just under 50% of the tax filers.

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.

At best, the deficits brought about by the Federal government 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.

What effects will deficit spending today have on public pensions and the health care system? How will deficits affect taxation on after-tax retirement income or wealth transition in the future? How will incomes of boomer offspring fare on an after-tax basis?

Now is 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 income or capital.

We would like to know your thoughts on the deficit, and what the future holds for us with these kinds of deficits predicted for the next couple of years.