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2008 Federal Budget
Canada's CAs give B+ to federal budget
TORONTO - Canada's Chartered Accountants are giving the federal budget a solid B+ rating in these times of economic uncertainty.
"This is a prudent, steady as she goes budget from the government,"
stressed Kevin Dancey, FCA, President and CEO of the Canadian Institute of
Chartered Accountants. "Coming at a time when the Canadian dollar is strong
and the U.S economy is struggling, the federal budget follows through on the
government's commitment to reduce debt while targeting program spending, job
creation and encouraging savings by Canadians."
Included in today's budget is the government's confirmation that it
intends to reduce the federal debt (or accumulated deficit) by $10.2 billion
this year and apply interest savings to personal income tax reductions. It
also provides incentives for Canadians to save through the introduction of a
tax free savings account that enables individuals 18 and over to earn tax-free
income and capital gains outside their RRSPs. In addition, the budget contains
an array of targeted initiatives to help individual Canadians, businesses,
communities and the environment. Some of the most significant are:
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- Extension of the accelerated CCA for certain equipment for another
three years - which the government estimates will provide the
manufacturing sector with about $1 billion in tax relief;
- Creation of a new crown corporation in 2009 that will implement a new
EI premium rate setting mechanism;
- Making permanent the federal Gas Tax Fund which supports city
infrastructure and providing other incentives for infrastructure
renewal, some of which include public transit and funding innovation
to support the adjustment by Canadian businesses to climate change;
- Increasing the maximum qualified expenditures and extending the
phase-out limits for the Scientific Research & Experimental
Development Program.
>>
"When taken in conjunction with last fall's Economic Statement, this
budget represents a solid commitment by the government to a framework that
will ensure the long-term international competitiveness and prosperity of
Canadians," said Dancey. "This budget falls short of an "A" grade based mainly
on our continued concerns about growth in program spending."
The government's program spending increased 6.8% in the current year,
which is in excess of what the government forecast in the 2007 budget. The
growth rate forecast for fiscal 2008/09 is 3.4 % but that rate is expected to
increase to almost 5% the following year.
"This is a concern that needs to be addressed as program spending
continues to remain above the rate of inflation adjusted for population
growth," said Dancey.
"We are hopeful the government will take action to lower these
expenditures as part of the formal review it announced in the budget today.
This is important because the federal surpluses are forecast at $2.3 billion
and $1.3 billion respectively in each of the next two years. The potential
exists for federal finances to slip into deficit should the economy weaken,"
Dancey said.
Canadians should also be aware that, starting in 2010, the tax on
dividends will increase as corporate tax rates are reduced. "The top federal
tax rate on dividends will increase from 14.55% in 2009 to 19.29% in 2012,"
said Dancey. "While this is a technical adjustment which is a consequence of
the reduction in corporate tax rates, individuals should be aware that the
personal tax they pay on dividends will increase."
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