Editorial: Canada suddenly knee-deep in deficits

Well, it wasn’t quite what was billed in the Canadian federal election last October: the first budget tabled by Justin Trudeau’s new government goes easy on the promised infrastructure spending and instead puts the government’s finances deeply in the red, with middle-class tax cuts and wealth redistribution to the poorest Canadians, with no real plan to return to a balanced budget.

Instead of going up to $10 billion into deficit in 2016 as promised in the election campaign, the new Liberal has charted a path to create a $29.4-billion deficit this year and another $29-billion deficit next year.

Perhaps the most sweeping change in the budget is the overhaul to family tax credits to help low-income Canadians with children. You can play around with the numbers at www.budget.gc.ca/2016/tool-outil/ccb-ace-en.html, but as an example at the most generous end, a household bringing in a full-time minimum wage of $18,000 annually with two children under six years old will now receive $12,800 in annual tax-free child benefits starting July 1.

The Trudeau government pretty much left corporate taxes alone, and focused much of its tax changes on personal rates.

Of note to investors and people involved in start-up companies, the Liberals didn’t implement a campaign promise to hike the inclusion rate for capital gains beyond the current 50% to perhaps 67% or 75%, or to pursue a plan to cap stock-option grants at $100,000.

An expected drop in tax rates to 9% from 10.5% for small businesses earning less than $500,000 also didn’t materialize — in effect maintaining this tax rate only slightly under the 11% general corporate tax rate. Dan Kelly, president of the Canadian Federation of Independent Business, called it a “big, fat broken promise.”

Earlier this year, the Trudeau government had already reduced the income tax rate for the middle-income bracket to 20.5% from 22%, and boosted the tax rate on people earning more than $200,000 annually to 33%, from 29%.

For the unemployed, employment insurance (EI) benefits will be extended in the 12 hardest-hit regions of Canada, and employees will see their EI premiums cut beginning next January.

The Mining Association of Canada (MAC) said it welcomes the new Liberal government’s “appropriate” investment in areas that “facilitate the responsible growth of mining in Canada,” such as fostering a clean growth economy and reconciliation with Indigenous Peoples.

MAC gives a nod of approval to several budget moves: improved funding of the Canadian Environmental Assessment Agency and Fisheries and Oceans Canada, which will help it carry out efficient regulatory reviews and support meaningful consultations with Indigenous groups; new investment in Natural Resources Canada’s science laboratories; support for the Canadian Northern Economic Development Agency; renewal of the popular 15% Mineral Exploration Tax Credit (i.e., federal “flow-though shares) for another year; and removal of double taxation of greenhouse gas emission allowances.

Across the Canadian mining community, MAC and others are lauding the new government’s interest in seeking reconciliation with Indigenous Peoples, including new money for education, skills training, and social and economic infrastructure in aboriginal communities. Some $8.4 billion in new money will be earmarked for aboriginal communities over the next five years, including $2.6 billion for primary and secondary education on reserves, and $2 billion for water and wastewater infrastructure.

MAC says that “these investments are important building blocks for accelerating the participation of Indigenous Canadians in the mining industry,” which remains the largest private sector employer of Indigenous Canadians.

Canada’s mineral explorers and mine developers also approve of the federal government’s commitment to broaden the definition of Canadian Exploration Expenses (CEE), which now includes certain mineral exploration costs associated with undertaking environmental studies and community consultations.