Challenges, Growth and Opportunity: A Shadow Federal Budget for 2015

Abstract

The 2015 edition of the C.D. Howe Institute’s annual Shadow Federal Budget lays out a prudent fiscal course in the face of a challenging world economic environment, bolstering the confidence of Canadians in the sustainability of their public finances. It supports economic growth with tax changes and investments that support business investment and job creation. And it enhances opportunities for Canadians by investing in their skills for the workplace and better preparing them for retirement. The first order of business for this Shadow Budget is to prevent a slide back into red ink. Recent world commodity market swings makes near-term economic growth and fiscal revenue forecasts more uncertain. Doubling the amounts set aside for prudence, selling the government’s remaining interest in airport leases, and containing the cost of federal government operations, will protect the budget surplus and strengthen the balance sheet. Measures to improve the transparency of federal finances through a restatement of Ottawa’s obligations for employee pensions, and supplementary information on the present value of future taxes on tax-deferred savings, will facilitate the adoption of more forward-looking fiscal policies. Strong and sustainable economic growth requires policies to promote adjustment to changing market conditions and deploy Canada’s physical and technological resources where they will do the most good. Measures to boost Canada’s economic dynamism include creating a more efficient payments system, reviewing capital consumption allowances, and ensuring that Crown financial corporations have a clearly articulated mandate complementary to private lending institutions. Fresh infrastructure spending – $1.7 billion – is devoted to national air and rail transportation networks, two areas where federal involvement is uniquely appropriate, and where important economic benefits can be reaped. On the tax side, the introduction of an allowance for corporate equity investments (on a revenue neutral basis) in the computation of corporate income taxes will improve the environment for business investment and reduce distortions toward debt-financed investments. As for innovation and technology adoption, the introduction, as several countries already have, of a “patent box” will encourage the commercialization and use of innovative ideas developed in Canada. Canadians’ economic prosperity depends in large part on the opportunities they have to develop their knowledge and skills, to deploy them during their work lives, and to save and draw down savings once their work lives are over. This Shadow Budget takes several steps to improve and protect these opportunities, including boosting funding for benchmarking the performance of education systems, expanding eligibility for tax preferences on pension income and retirement savings, and eliminating mandatory minimum drawdowns from Registered Retirement Income Funds (RRIFs) and similar accounts. The plan for confronting the fiscal challenges ahead, promoting growth and ensuring better opportunities for Canadians will be cost-effective, leaving the budget in surplus.