The Federal Budget: Should More Be Done?

By Evelyn Jacks

The financial stimulus packages of prior years are doing their job: stimulating domestic demand, and helping Canadians recover their financial health. But is there a cost for this flood of money into the economy? Will it spell higher taxation levels in future federal and provincial budgets? Should more be done to encourage Canadians and their governmentsóboth federal and provincial - to act responsibly and with purpose towards our ongoing economic recovery?

These are important questions in advance of the annual federal budget expected to come down this quarter. According to the Department of Finance's Annual Fiscal Report for 2008-2009, the share of revenues spent on public debt charges declined from 13.7 percent in 2007ñ08 to 13.3 percent in 2008ñ09. This is down from a peak of about 38 percent in 1990ñ91. The share of revenues devoted to public debt charges is now at its lowest level since the late 1970s.

However, recent deficits have increased dramatically:

• For the first seven months of the 2009ñ10 fiscal year, the budgetary deficit was $31.9 billion, compared to a deficit of $0.1 billion reported in the same period of 2008ñ09.
• With a budgetary deficit of $31.9 billion and a requirement of $26.3 billion from non-budgetary transactions, the federal government had a total financial requirement of $58.3 billion in the April to October period of 2009ñ10, compared to a financial requirement of $33.8 billion in the same period of 2008ñ09.

Currently the Department of Finance is requesting input from Canadians on the upcoming Federal Budget. It's an opportunity to express opinions and best thoughts on the financial future and provide feedback. You can make your suggestions through the following link to the Department of Finance website.

Suggestions submitted by The Knowledge Bureau include the following changes to personal taxation provisions that may continue to increase after-tax income available to stimulate both savings and spending by certain demographic groups in Canada:

• Raise basic personal amounts so as not to tax non-discretionary income of single moms and young working families.
• Increase the TFSA savings rate to $10,000 per year; then encourage average Canadians to pay down non-deductible consumer debt.
• Provide a moratorium on taxation of the first $10,000 in RRSP/RRIF withdrawals to stimulate spending by boomers;
• Increase deductible attendant care/nursing home costs to $2,500 a month and make this a deduction from income of either the elderly or their supporting individuals; who are bearing an economic burden with health care advocacy;
• Increase tuition/education transfer to supporting individuals from $5,000 to $10,000 per year;
• Allow for general averaging on severance packages over 5 years to allow the best tax result.

NEXT TIME: HOUSEHOLD FINANCE NUMBERS ARE LOOKING GOOD

Mark Carney, Governor of the Bank of Canada recently spoke on Current Issues in Household Finances (December 16), and the news is mostly good. Tune in next week to anticipate what 2010 holds in store for purchasing power, savings rates, consumer spending and debt as well as taxation trends.