A Federal budget date is expected soon after Prime Minister Trudeau and Finance Minister Morneau return from this week’s meetings with the new U.S. administration. Two important reports have been issued recently to provide insight into some of the thinking about risks and responses in our financial world: Finance Canada’s 2016-2017 Report on Plans and Priorities and the Bank of Canada’s January 18, 2017 Monetary Policy Report. Taken together, they provide a good crystal ball on the economic matters that may shape some of the government’s thinking as it delivers its second budget this year.
The Finance Department’s Report reflects on the recent stalling of growth in the Canadian economy and puts the blame largely on two factors: crude oil pricing and what it calls the “overall week and fragile global economic situation” in which we have lived and worked since 2014.
At the time this report was produced, Finance Canada particularly has its eye on the weakened economies in Europe, the politically-charged Middle East and slowing growth common to most other countries around the world.
Emerging markets, in particular, the report notes, will be impacted by the “normalization” of U. S. monetary policy. To that end it has outlined its top three risks meeting its priorities and it will be interesting to see if they come up in the US-Canada meetings and the budget:
- Strategic planning and policy recommendations will continue to be difficult. The uncertainty and volatility in the global economy will challenge the Department’s ability to provide accurate strategic advice and policy recommendations. It plans to manage those risks by monitoring global indicators, conducting private sector surveys of the Canadian economic outlook and meeting regularly with private sector economists.
- Challenges to the integrity and reputation of the Canadian financial system will require infrastructure and resources. This challenge is to be met by ongoing specialized staff training initiatives, monitoring of events and the need to develop new initiatives in response.
- Security. This is an ongoing issue for government. The finance department plans to collaborate with Shared Services Canada to implement new departmental approaches to increased security for networks, desktops and their applications.
More recently, however, the Bank of Canada is monitoring five risks that have evolved since October, 2016:
- Stronger real GDP growth in the U. S.
- The notable shift towards protectionist global trade policies
- Higher commodity prices
- Sluggish business investment in Canada
- Weaker household spending due to a rise in savings rates and a decline in national housing resale activity all the while that household debt continues to rise
- Higher global long-term interest rates
At the end of Budget Day, what’s important to taxpayers and their advisors is how Finance Canada will focus its priorities on changes to the tax system. Here the Finance Department’s Report notes its priorities will include the continued advice and analysis on ways to improve the tax system in four key ways: through fairness, neutrality, efficiency and simplicity. Expect the upcoming budget to take aim at “poorly targeted” tax expenditures and “inefficient measures” that erode the tax base.
Finance Canada, which is a department established in 1867 – 150 years ago – plays a critical role in executing on its mandate: helping government “develop and implement strong and sustainable economic, fiscal, tax, social, security, international and financial sector policies and programs. It plays an important central agency role, working with other departments to ensure that the government’s agenda is carried out and that ministers are supported with high-quality analysis and advice.”
Specifically, the report itemizes the Finance Department’s top seven responsibilities:
- Preparing the federal Budget and the fall Update of Economic and Fiscal Projections;
- Preparing the Annual Financial Report of the Government of Canada and, in cooperation with the Treasury Board of Canada Secretariat and the Receiver General for Canada, the Public Accounts of Canada;
- Developing tax and tariff policy and legislation;
- Managing federal borrowing on financial markets;
- Designing and administering major transfers of federal funds to the provinces and territories;
- Developing financial sector policy and legislation; and
- Representing Canada in various international financial institutions and organizations.
In an increasingly complex world, this is a tall order. The next crystal ball to the financial future is just around the corner. We’ll look forward to reporting on the Federal Budget measures and soliciting your thoughts on it.
Evelyn Jacks is President of Knowledge Bureau, Canada’s leading educator in the tax and financial services, and author of 52 books on family tax preparation and planning.
Additional Educational Resources: DAC Conference – for a strategic look at the issues that shape tax and economic policy in Canada and what they mean to professional advisors and their clients, please join us Nov 5 to 8 in Kelowna.
Posted under: Income Tax