Federal Budget 2016

 

Federal Budget 2016

Executive Summary

The Federal Liberals led by our Prime Minister Justin Trudeau revealed few surprises in the budget presented by the Minister of Finance, Bill Morneau, on Tuesday, March 22, 2016.

Prior to the specifics outlined in the budget it was revealed that the focus would be on middle income families, indigenous peoples and infrastructure, and that the budget deficit would be around $30 billion.

The budget, named “Growing the Middle Class”, made all of those “promises” come true, even if not all of them were made during the election campaign.

A downloadable pdf version of the budget document can be found at http://www.budget.gc.ca/2016/docs/plan/budget2016-en.pdf.   The document is 269 pages, and is half as long as the last budget.

 

What you need to know

One of the figures that often is lost during Budget Season is Canada’s total spending.  Over the next five years, the federal government’s spending will rise from $271 Billion to $323 Billion.

The deficit for the fiscal year April 1, 2016 to March 31, 2017 is projected to be $29.4 billion; $29 billion the year after and by year four to drop to $14 billion before the next election cycle.

In relative terms, our government’s accumulated debt is low compared to other industrialized nations.  The Debt-to-GDP Ratio for Canada will stay unchanged at 31%, which is less than half of the average for G7 countries.

According to RBC Chief Economist, Craig Wright, the governments projections are conservative (his word, not mine!), and if the economy performs as RBC predicts the deficit in the year just prior to the next mandated election may disappear.

Budget highlights:

  • Income tax for the middle class and top earners has been adjusted
    • on amounts over $200,000 the Federal income tax increases to 33% from 29%
    • between $45,000 and $90,000 the Federal rate falls to 20% from 22%
  • Infrastructure spending will be $120 Billion over the next 10 years and to focus on transit, waste, water and housing
  • Funding for Indigenous Peoples to encourage education, improvements for water and housing, and an Inquiry for Missing and Murdered Indigenous Women has increased
  • For Families
    • Monthly tax-free benefits for families to be increased to a maximum of $6,400 per year per child, and clawed back completely if the household income exceeds $190,000
  • For Seniors
    • Pension income splitting continues
    • Guaranteed Income Supplement (GIS) is increased by 10% to almost $1,000 per year, and can now be split between couples
    • OAS eligibility has been restored to age 65
    • A Seniors-Price-Index will be developed to ensure that the value of benefits will not be eroded by inflation
  • For Students
    • Canada Student Grant amounts increase from the current maximum of $2,000 to $3,000 per student, depending on family income
    • Student loan repayment does not occur until income reaches $25,000/year
    • Co-op placements for students will be supported by $73 million in programs this year
  • For Veterans and their families
    • Veteran Affairs Canada will re-open up to nine offices
    • The majority of income support and benefits will be linked to inflation
    • Direct payments, disability pensions, and duration increase
  • Employment Insurance will become easier to qualify for, and premiums will be cut, the maximum benefit period has been extended to 70 weeks
  • The contingency fund has been increased to $6 Billion for this budget (up from $3 Billion), providing the ability to adjust, if necessary, or return the funds if not used

 

The Bottom Line

March 2016 lays the ground-work for re-election in 2021 with much of the population feeling better off, and the large contingency and conservative economic estimates poising the sitting government to release plenty of good news in the next election year.

The goal of the budget is to put more “spendable” money into the hands of those who spend out of necessity, and as a result provide a positive jolt to the economy.

Another goal is to position Canada for future growth by spending on infrastructure today.  The infrastructure is meant to make Canada a more efficient economy.  Improved public transit should relieve pressure on crowded roads, shortening commute and shipping times, lowering costs for manufacturers, and making domestic firms more competitive.

Sincerely,

Jeff Devlin, CFP

Elementus Wealth Management Inc.

 

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