TACTIX 2014 Budget Analysis

Feb, 2014


Budget 2014: Setting the Table

Budgets are all about choices. Choosing how billions of dollars of revenue should be allocated amongst the thousands of interests competing for those dollars. Choosing when to balance the books and when to determine that deficit financing is more prudent. Choosing how a government wishes to be defined by the electorate. These are choices that all Prime Ministers and Finance Ministers face when putting the finishing touches on a budget. The choices made by Prime Minister Harper and Finance Minister Flaherty are revealed today in Budget 2014.

Choosing to deliver a budget when Charles Hamelin, Alex Bilodeau, Dara Howell and the Dufour-Lapointe sisters are owning the podium and when Canada’s women’s and men’s Olympic hockey teams are grabbing the attention of millions more Canadians speaks volumes about the government’s intentions. Today’s Budget carefully leaves choices open down the road, to when it really counts. Budget 2014 is all about setting the table for the critical pre-election budget in 2015.

Achieving Balance

The Conservative government’s core governing theme has consistently been that they are the best economic managers on offer in Ottawa. It is absolutely vital to their 2015 re-election strategy that they rid themselves of the last vestiges of the severe economic downturn of 2008-09 and return the federal government’s books to the black. Budget 2014 confirms that they are firmly on track to achieving this overriding political objective. In fact, if the budget contingency fund of $3 Billion is excluded, the budget is for all intents and purposes balanced. Moving steadfastly toward a balanced budget has largely been a multi-year exercise in federal program expenditure freezes and staff reductions. Transfers to individuals and to other levels of government have been protected. Today’s budget reaffirms this approach to managing the federal government’s financial affairs.

Battleground Middle Class

Today’s Budget also lays groundwork for what is likely to be a major battleground in the 2015 election – winning the hearts and minds of Canada’s middle class. All three major federal parties will be aiming their policy initiatives largely at this somewhat mushy, ill-defined segment of Canada that constitutes the middle class. The parties will not try to define what they mean by “middle class”, leaving it to Canadians to self-identify because only they really know who they are.

The Family Tax Cut, promised in the Conservative Party’s 2011 election platform, which will permit income sharing for couples with dependent children under 18 years old, did not make its way into today’s Budget because a balanced budget was not delivered today. There can be little doubt, however, that this income-splitting measure will be front and centre in Budget 2015 and that it will prove to be popular with many Canadians.

Making their way into Budget 2014 are a continuation of the pro-consumer measures foreshadowed in the government’s 2013 Speech from the Throne.

Today’s Budget includes:

  • Wholesale domestic wireless roaming rates will be capped.
  • CRTC power to impose administrative monetary penalties on companies violating the rules.
  • Legislation will be introduced to prohibit unjustified cross-border price discrimination between consumer prices in Canada and the United States.
  • Helping lower the cost that merchants pay to accept credit cards.
  • Ensuring banks provide low-cost basic banking services.
  • Developing a comprehensive financial consumer code.

Sector-By-Sector Measures

Budget 2014 includes several measures aimed at critical sectors of the Canadian economy:

  1. Agriculture

    The government reiterated its support for agriculture highlighting the 2013 Growing Forward program that has made $3 billion available over five years for investments in innovation, competitiveness and market development. With a nod to beekeepers, Budget 2014 proposes to extend tax deferral measures that are available to other farmers when struck by extreme weather conditions.

  2. Chemicals

    Budget 2014 will introduce amendments to the Hazardous Products Act and other statutes to align implementation of common classification and labelling requirements for workplace hazardous chemicals. This measure will facilitate international trade, reduce costs to businesses and enhance worker health and safety through improved and consistent hazard identification. Affected companies will be concerned about an appropriate transition period to be compliant with Materiel Safety Data Sheets and product labelling under either the current Controlled Products Regulations or the future Hazardous Products Regulations (HPR) following the anticipated June 1, 2015, coming into force date for the new HPR. Industry will also be concerned about any potential weakening of risk-based regulation of chemicals.

  3. Defence and Procurement

    Following the announcement by Ministers Finley and Nicholson last week, Budget 2014 highlighted the key points from the new Defence Procurement Strategy. The most critical new announcement today is the following:

    To ensure that funding is available when needed for planned procurements, the Government is moving $3.1 billion in National Defence funding for major capital procurements from the 2013-14 to 2016-17 period to future years in which key purchases will be made.

    Given that defence specific inflation is anywhere between 7% and 11% per year, we can expect these funds to lose purchasing power.

  4. Energy & Resources

    Transport Minister Lisa Raitt`s recent Canadian Club speech served as a precursor to developments in the transportation of energy resources: prevention, preparedness, and response. Budget 2014 commits to responding to reviews conducted by the National Energy Board, the Tanker Safety Expert Panel, and the Special Representative West Coast Energy Infrastructure. Of all resource sectors, Mining appears to have done particularly well, with tax credits for exploration. Moreover, assistance to offshore oil and gas developments may come in the form of tariff elimination.

  5. Financial Services

    The banking sector gets some close scrutiny as part of the consumer protection measures identified above. In addition, the government will be developing a comprehensive framework for the oversight of the Canadian payments system and will consult on the oversight of retail payments systems. The government also proposes to improve and clarify the federal regime for credit unions and is establishing a P&C demutualization framework that will provide for an orderly and transparent process that ensures policyholders are treated fairly and equitably.

  6. Foreign Investment and Acquisitions

    Encouraging foreign Investment continues to be of importance for the government as Budget 2014 promotes Canada`s average Annual Growth in FDI since 2009 as topping all G-7 countries. Harmonizing the Intellectual Property regime and pursuing free trade deals are highlighted as means to continue making Canada attractive to Foreign Investors.

  7. Information and Communications Technology

    The increase of internet into rural communities was widely reported in advance of the Minister Flaherty tabling EAP 2014. However, while such consumer-centric announcements were widely discussed, a central component of the Government`s information and technology plan surrounds modernizing intellectual property regimes with international norms.

  8. Manufacturing

    The automotive industry is singled out for additional support through the existing Automotive Innovation Fund. An additional $500 million over two years will be allocated to this fund to support new strategic research and development projects and long-term investments.

  9. Transportation and Infrastructure

    While most of the attention in Budget 2014 is aimed at continuing the New Building Canada Plan committed to in 2013, particular attention has been paid on increasing P3s, as well as specific new funding attached to the Windsor-Detroit International Crossing and a new bridge in Montreal to cross the St Lawrence River.

In Closing

Stay the course. Minimalist. Low-bridge. Ho-hum. Budget 2014 will largely be characterized in this fashion in the barrage of media coverage over the next 24 hours. This does not mean, however, that nothing happened today. Perhaps little will change in economic terms as a result of today’s budget. But Budget 2014 is far more than an accounting of Canada’s fiscal and economic condition – it is also a political statement. The government was not prepared to announce a balanced budget today. Instead, the table is being set for Budget 2015 – the Election Budget.