How Will the Federal Budget Affect Our Lives?

The federal budget announced recently has interesting policies that are expected to affect Canadians. Economic Action Plan 2015 has different components that may affect the lives of Canadians differently. An important aspect of the budget is that it would be balanced in 2015-16 with a projected surplus of $1.4 billion.

The budget would support manufacturers and advanced research. This is vital for maintaining the manufacturing base of the country as well as supporting innovation that is crucial to keep Canada at the leading edge of science and technology. The 10-year tax incentive to manufacturers will undoubtedly boost the manufacturing sector of the economy. Funding advanced research, including the additional $1.3 billion over six years, starting from 2017-18, to Canada Foundation for Innovation, is a welcome move for the research sector.

Again, the initiative to help small businesses in various ways including lower taxes and lifeline capital exemption would benefit small businesses and generate employment in the country. The provision of funding various programs for training a highly skilled workforce is commendable. In a rapidly changing work environment, the allowance of $65 million so that businesses and industry associations work with post-secondary institutions to better align curricula with needs of employers is very pragmatic. It would help both potential employers as well as fresh graduates seeking employment. Also, expanding eligibility for the low and middle-income Canada Student Grants to short duration programs and investment in aboriginal labour market programming would benefit the targeted employment groups.

Investment in infrastructure is important for a country’s development. The budget allocates investment in infrastructure, including providing $5.35 billion per year on average for provincial, territorial and municipal infrastructure under New Building Canada Plan. This investment in infrastructure would help boost the economy by further improving the transportation system of the country. Also, the importance on growing trade and expanding markets in the budget is prudent in an increasingly globalized world. Policies that encourage Canadian companies to increase exports to established export destinations and explore the markets of fast growing emerging economies would benefit Canadian businesses, generate employment and expand the national economy.

The low tax plan to help families would help many Canadians. The extension of Employment Insurance Compassionate Care Benefits from six weeks to six months and programs supporting seniors are predicted to have positive impacts on citizens. Again, policies to help Canadians with disabilities, veterans, aboriginals as well as outlining investment in health of Canadians would benefit the society and contribute to build strong communities.

The increase in the Tax-Free Savings Account (TFSA) annual contribution limit to $10,000 would be helpful for families with children. It would mostly benefit the middle class and the rich. It is a policy that would help the middle class and rich to save more and increase their wealth. However, it would not necessarily benefit Canadians in the low income and lower middle class groups as they may find it challenging to set aside $10,000 per year for their TFSA contribution. Therefore, increasing the contribution limit would benefit high-income Canadians and not necessarily benefit low-income Canadians that may lead to an increase in wealth disparity between these two groups.

While the budget is projected to be balanced, the contingency fund would be decreased from $3 billion to $1 billion. A change in the accounting method leads to a balanced budget as the decrease in the contingency fund contributes to balancing the budget. Also, the decrease in the contingency fund when oil prices have fallen and there is considerable uncertainty in the future direction of oil prices, may not be that prudent. Again, other commodity prices may fall that may adversely affect the economy and require the need to utilize contingency funds. Moreover, the global economy is still weak and, like other countries, Canada is exposed to potential global macroeconomic shocks. In these precarious situations, it is not judicious to decrease the contingency fund. Some may even argue that it is wise to increase the contingency fund in these uncertain economic times.

A budget deficit is not necessarily bad if it improves the lives of Canadians and invests in the future. When the reasons for budget deficit are investments in infrastructure, education and skills development, establishment of physical and recreation centers, the expenditures are investments in the future. While a budget deficit puts the responsibility of paying off debt in the future, it can also lead to gains in terms of better education and health as well as higher skills of the workforce. In that case, a budget deficit is not necessarily a liability as it is an investment in the future.

Overall, the federal budget outlines policies that will benefit Canadians. However, the increase in the TFSA contribution limit may exacerbate wealth disparity between high-income and low-income citizens. Also, the reduction in the contingency fund during a time of global economic uncertainty may not be very sagacious.


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