By: Wally Conway
The Honourable Jim Flaherty has finally tabled the Harper Government’s budget. As expected, the budget focus was on creating Canadian jobs, economic growth, and returning to balanced budgets. To meet its medium term goal of eliminating budgetary deficits, the federal government is relying on measures such as growing its revenue, protecting its tax base and reducing government operating expenditures.
By promoting Canadian economic growth, some of the budget measures would grow Canadian jobs and government revenues. The Harper government expects to grow jobs and government revenues by creating a Canadian business operating environment which would be globally competitive and attract new business investment to Canada. The proposed measures are designed to improve business operating conditions by supporting research, education and training, reducing investment inhibiting regulations and expanding access to foreign markets through expanding international trade and tax agreement networks.
By proposing new tax rules that are designed to curtail tax avoidance achieved through widely used international tax planning techniques, some budget measures would protect against tax revenue losses. The proposals would deal with tax base erosion achieved through thinly capitalized Canadian subsidiaries of non-residents, the sale of shares of related foreign corporations to Canadian subsidiaries, secondary adjustments associated with international transfer pricing assessments and the packaging of non-capital property of a Canadian corporation in a partnership prior to a sale to non-residents. Measures affecting Canadian individuals are also proposed. Together these tax measures could have significant positive government revenue impact.
Finally, some budget measures propose to reduce government operating expenditures by some $5.2 billion annually. Nonetheless, government expenditures are expected to grow by over 6% from last year. Expenditures are expected to grow further in future years. Consequently, we can expect to see more attempts at revenue growing and tax base protecting in future year’s budgets of the types that are in this year’s budget. As well, current tax expenditures (perceived entitlements of taxpayers) may become tax base broadening targets of budgets of future years.
It is clear that the path to balanced budgets lies in sustainable economic growth. If the Harper government wishes to create a globally competitive business operating environment capable of attracting the new business, it needs to be more analytical and strategic in development of its actions plans. Canada must compete globally. To do so effectively, Canada must become more strategic in its efforts. This sort of strategic effort appeared to be lacking in the budget.
Any Harper government strategy must include an evaluation of the strengths and weaknesses of Canada and its global competitors. Canada must use its strengths to exploit the weaknesses of its competitors. To the extent that Canadian weaknesses are being exploited by its competitors, those weaknesses need to be eliminated. The elimination of weaknesses and the building of strengths is where the government needs to direct its efforts. Canada’s resources and efforts need to be focused on actions that will produce the most effective results. Results of actions must be measured and evaluated. A good plan today is better that a perfect plan that is too late.