Budget 2014: “Move along, nothing to see here!”

The problem with reading most of the post-budget analysis is that it fails to answer the critical question, “what does all this mean to me?”  This lighter analysis will attempt to answer this query both metaphorically and through several Canadian personas.

Overall, accepting this budget is like buying a new car in the last year of the current model’s production, right after spy photos come out showing you what the replacement will look like.  Unfortunately for you, the current family ride died and this year’s model meets all your needs, though you wish you could hold out just a little longer for the newer, sleeker, sexier, more economical (if that’s your thing) version. Yes, this budget is all about resignation and regret.  Finance Minister Flaherty regrets that he cannot give Canadians juicy tax cuts this year, implement the often-discussed income splitting option, nor deliver a big surplus to put the cherry on top of the sound fiscal management cake.  All that will wait for next year, sorry, but he had to bring in a budget this year as always, so this is what you get.  Stick around for the election-year budget of 2015 that will really deliver the goods and which Tories hope will lead to another majority government.

The budget is projecting a $3 billion deficit, but there is also an equivalent contingency fund set aside for unforeseen expenses.  Therefore if there are no surprises like another natural disaster where Ottawa picks up most of the cleanup tab, the budget will already be balanced.  However, I am prepared to predict that the actual results will produce a surplus in the $3-5 billion range and that the 2015 budget could produce a $10 billion surplus.  I base this prediction on the unheard of behavior in Ottawa of unspent departmental budgets actually being returned to the Treasury Board rather than being blown out the door in the last fiscal quarter as was the previous practice.  One of the most important elements of expenditure control that has been lost in the analysis is that the senior government bureaucrats have internalized the message of restraint from this government.  It is now virtuous not to spend, and there is extreme discretionary expense control across all portfolios.  Even crown corporations that are unappropriated (self-funding) are expected to manage with extreme economy.  The culture of Ottawa has been effectively changed, and that might turn out to be the greatest legacy of the Harper era.  It’s as if Mom and Dad got the kids to turn in unspent allowance at the end of the month to pay down the credit card bills – when was the last time that happened at your house?

Here is my (short) winners and losers list.  You are:

1) An Aboriginal trade student living in rural Canada: winner!  The government has handed control of education over to your elders, is prepared to give you student loans and bursaries to learn your craft, and on top of that they want to improve your high-speed internet access!  You grabbed the budget trifecta, all twelve of you across Canada.

2) A smoker in the working in Defence manufacturing: loser!  Not only are you going to pay four dollars more a carton for your smokes, raising an extra $3 billion for the government, but coincidentally another $3 billion in defence department procurement is moving years into the future.   Many significant material programs like the naval supply ships, the F-18 fighter replacements, the polar icebreaker and the like are so far behind or politically contentious that the money would not have been spent in the upcoming fiscal year or next, so there was no point in leaving those funds in the budget.  Defence inflation runs up to 10% per year, so expect those dollars to buy less if and when the funds are ever spent.

3) An auto worker with a stay-at-home spouse: winner today, possible loser tomorrow.  The government is investing another $500 million over two years in Canada’s Automotive Investment Fund. This is essentially the subsidy fund that the government uses to compete against other markets to attract or maintain auto plants in Canada, like the recent financial extortion by Chrysler to keep its Windsor plant open.  If Flaherty implements income-splitting in 2015, your federal tax could go to zero if you are allowed to share it with your spouse at home.  Oops, Flaherty said that income-splitting may not broadly benefit Canadians, so that measure may not be offered.  Should your spouse go back to work and you put the kids in day care?  The fight in the Tory caucus is just beginning over the income splitting promise, stay tuned.

4) Really rich: losers today and tomorrow:  This budget and the one to come will all be about consumers, aka the middle class, i.e. not you.  This budget closed estate tax and trust loopholes; if those measures resonate with voters, then expect more rule tightening in the future, and any tax rate reductions in 2015 are unlikely to touch the top rate.  Put aside the fact that the top 10% of taxpayers produce nearly half of all federal income tax revenues; they still only get one vote each.

If you do not recognize yourself in any of the profiles above, please be patient – the 2015 budget is only about 360 days away, and that document will have something for everyone!