Economic and Fiscal Reports In:  Recovery is Evident but Deficits Remain ‘til 2015

The Finance Department Released its update on economic projections on October 12, a fitting encore to a Thanksgiving weekend that had Canadians basking in beautiful sunshine in much of the country. Sunny too is the mood of investors, particularly with the news about our financial recovery, which has taken us back to a pre-crisis environment.

However, the fly in the ointment is certainly the deficit, which has increased moderately to almost $56  Billion, according to the report, since the March 4, 2010 budget, primarily due to an accrual of $5.6billion in transitional assistance payments for recent provincial tax decisions to be paid in 2010ñ11 and 2011ñ12.

Personal income taxes will also rise by 8.8 per cent in 2010ñ11, as our progressive tax system takes more from the anticipated growth in personal income, combined with the expiration of the Home Renovation Tax Credit. Corporate income tax revenues are projected to decline by 7.6 per cent in 2010ñ11.

The department underscored that the Canadian economy "fared much better than other major advanced economies throughout the recession and over the recovery to date.î Our decline in GDP during the global recession was the smallest of all G-7 countries. However, looking forward into the short term, our GDP growth is expected to be moderate. Private sector economists expect a growth rate of 1.8 per cent in the third quarter of 2010 followed by an increase to approximately 2.5 per cent over the next three quarters.

Interest rate projections have also been decreased since the March budget. Three-month treasury bill rates are now expected to be lower by an average of about 50 basis points between 2010 and 2014 while 10-year government bond rates are expected to be lower by an average of about 75 basis points. Further the unemployment rate for 2010 is forecasted to remain at 8.0 per cent, which is down only .5% since budget time.

These economic trendlines and their impact on tax, investment, and retirement plannng will be discussed in depth at the Distinguished Advisor Workshops throughout Canada in November and at the Distinguished Advisor Conference in Orlando. In particular delegates will learn how these projections affect year end planning and a longer term strategic approach to family wealth management, respectively, at these events.