The 2014 Unbalanced Budget

CaledonInst.org – Publications
February 2014.   Ken Battle, Sherri Torjman and Michael Mendelson

A balanced Budget is the holy grail of finance – and of Finance.  This year, it was not to be.  The 2014 federal Budget was not in balance.

Because the 2014 Budget has a $3.0 billion contingency fund and a $2.9 billion deficit, it is actually projected to be balanced from a fiscal perspective.  But it is severely unbalanced in that it fails to address serious social problems currently plaguing the country.

Income adequacy and income security are critical issues currently facing the majority of households in Canada.  Growing income inequality poses a long-term threat to our social and economic prosperity.  Cheaper cell phone bills and local shopping incentives are all good but they are at best peripheral to the core concerns of most Canadians.

The Conservatives had announced the intention in their 2011 election platform to proceed with income splitting for families with children when the Budget was balanced. This measure would have been a big tax win for the small minority of affluent families with a sole male breadwinner and stay-at-home mother.  Income splitting for families with children under age 18 follows on their earlier move in 2006 to provide income splitting for seniors’ private pension income.  Both these measures – one implemented and one planned – increase inequality in Canada.

Since the Budget maintains the fiction that it is not yet balanced, the government can save this pricey tax goody until next year.  Perhaps this explains the absence of any mention at all in this Budget of this prime plank of the Conservative government.

The other option is that Ottawa has realized that income splitting for families with children is simply a very bad idea.  Perhaps the federal government is not just putting aside the proposal for the time being but is sweeping it under the table altogether. Maybe no news on this front is good news.

In this Budget response, we make the case for why we would not want to see income splitting for families introduced in next year’s Budget – or ever.  It is poor public policy.

But there is money for several new announcements in this year’s Budget.  The most important, in our view, is the financing for First Nations education.  Ottawa and First Nations are to be congratulated for their action in this area.  Other positive developments involve announcements – or re-announcements – on apprenticeships for youth, training for persons with disabilities, support for caregivers, and infrastructure and social housing investments.

At the same time, there are several negative developments from a social policy perspective.  They involve the Canada Job Grant and federal transfers to the provinces and territories.

We conclude the analysis with a statement of our concerns about the fact that the most pressing social problems in the country – widespread poverty and growing inequality – are missing entirely from the federal radar screen.  In that sense, both the Budget and the federal agenda that it reflects are seriously unbalanced.  Income splitting for families with children would be the worst way to tackle these challenges.

Neither would we want to see the surplus now in sight for 2015 to be wasted on a new set of ‘boutique’ tax credits targeted narrowly at specific groups of the electorate. Fortunately, Budget 2014 added only one arrow to its burgeoning quiver of tax cuts – the Search and Rescue Volunteers Tax Credit.  We hope that this targeted tax break will be the last.

ISBN – 1-55382-618-3

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