Some thoughts on the federal budget

The one time of year my numbers-geek profession and politics-geek hobby overlaps is when the budget comes out.  It’s exciting!  I spent a few hours Thursday night reading the budget document.  Well, not fully reading (it’s 498 pages!), but scanning and reading the bits that were more relevant/interesting.  And stopping to tweet when I saw something noteworthy.  It’s late now, so I’ll post this Friday morning, but here are some random thoughts on the budget:

  • Overall impression – Lots of offensive stuff, a handful of really good stuff, and lots of trivial administrative stuff that anyone in office would do, and should do.
  • On that last point – the Conservatives are changing some of the more complicated tax rules to attempt to prevent abuses that are occurring, mostly in the areas of international tax and large corporations and partnerships.  These are the entities that can afford Bay Street accounting firms to help them come up with aggressive (though usually not illegal) tax planning strategies to skirt their way around the rules to minimise their taxes, in some cases even leading to results most of us would find offensive.  To be honest, I haven’t seen a government in a while that was as up-to-date on these strategies as the Conservative have been and as quick to react to fix them.  Granted, some were loopholes created by the Conservatives themselves, but many have been on the books for ages.
  • There was also a lot of totally irrelevant and useless information in the budget – self-congratulatory rants about awards and recognitions the government has received and all sorts of discussions of general economic concerns.  Some of this (particularly the economic information) would have been very helpful for the government when putting together the budget, but plenty of it had very little to do with the actual activities the government is going to undertake .  The entire page on how safe it is for large tankers to travel in the Strait of Georgia was just partisan bullshit that had no place in this document.
  • One of the most offensive things in the budget, as many have pointed out already, is the environmental issues.  The biggest one is that they’re trying to make the environmental approval process more “efficient.”  They state that an “efficient regulatory system…is a vital component of an attractive climate for investment and jobs.”  Nevermind that it creates a very unattractive actual climate.  This was very explicitly aimed at reducing the amount of time the Gateway pipeline will take to approve.  As much of a greenie as I am, I acknowledge that we have to undertake various types of projects that will, undoubtedly, have an impact on the environment.  The same can be said of both wind farms and oil pipelines.  But if we’re going to do these things (often we have little choice), we need to take a thorough look at the impacts they will have.  We need to consult with the best experts, we need to consult with the people who will be directly and indirectly affected by them, we need to consult with the First Nations whose land these things may intrude on.  We need to take a good solid look at a project before we approve it.  Forcing it into a timeframe will also eliminate a lot of the necessary research and consultation.  If we’re going to engage in energy projects, we need to engage in the projects that have the least impact and provide the best results for the impact that is caused — and we need to ensure that if there is available technology to minimise the impact, that such technology is used.  We can’t just force a project through — and we can’t just reject projects too quickly either.  Thankfully, there was no suggestion that the 24-month cap on these assessments was 24 months then automatically approve – but this could also lead to the rejection of projects that might actually be worthwhile.  I agree with some of the government’s suggestions to work together with the provinces so they can do joint analysis, or at least simultaneous analyses, but simple forcing an arbitrary cap makes no sense.
  • Page 50 had a somewhat ambiguous program that seems to propose giving hundreds of millions of dollar a year to venture capitalists to encourage them to invest in Canada. I’m curious as to why there’s a perception that they need money…
  • The budget literally replaces a program call Leadership for Environmental Advantage in Forestry (the LEAF Program) with one called “Expanding Market Opportunities Program” – after combining it with “Canada Wood Export” and “North American Wood First programs.”  Forget leadership, BUY OUR WOOD!
  • There were very few tax changes, other than the complex ones noted above, and some fixes to the Registered Disability Savings Program. The most substantial change seems to be the gutting of the Scientific Research & Experimental Development (SR&ED) program, which has long been credited for Canada’s strength in innovation.  The budget document refers to this as “simplification,” but it’s basically destruction.  They’re reducing the base for the credit (disallowing capital assets and reducing the base for service contracts to 80% from 100%), AND reducing the rate it’s received it.  They claim this is due to the fact that corporate taxes are lower now so the benefit isn’t proportional anymore — but this makes no sense, since in theory when a company is engaging in SR&ED activities, it’s not making any money yet.  (This is complicated when an existing company is doing this, but even then such companies often incurring significant costs on SR&ED that severely reduce their taxable incomes).  So if the companies aren’t making much money, the lower tax rates aren’t going to help them invest in SR&ED, which was the whole point of the credit… so I don’t see how having a lower tax rate somehow means that reducing this credit won’t impact companies – it will.
  • There was a brief mention of moving towards eliminating contingency fees on tax preparation / tax consulting, which I appreciated.  I’m all for providing good client service by finding as many deductions as are legitimately there, but basing fees on them just encourages fraudulent behaviour.
  • The government is investing in technology to “improve access to modern reliable seismic data for offshore resource development” – translation: providing infrastructure for offshore (and likely deepwater) oil drilling.  Given the shitloads of money that oil companies make, I don’t see why they can’t damn well pay for their own seismic equipment.  If this were about earthquake / tsunami preparedness, that would be one thing – but it’s not.  It’s to help companies like BP “develop resources,” a.k.a. extract oil from under the ocean.
  • I’m confused about the quote on page 88, in the midst of a length rant about how awesome all those jobs we get from the tarsands will be, that says “A significant element of this economic boost is represented by Canada’s unique oil sands industry, which employs over 130,000 people while generating wealth that benefits all Canadians. This contribution is increasing: a recent study by the Canadian Energy Research Institute estimates that in the next 25 years, oil sands growth will support, on average, 480,000 jobs per year in Canada and will add $2.3 trillion to our gross domestic product.”  The wording of this, in contrast with the wording elsewhere in the paragraph, suggests the numbers in the last sentence include spin-off jobs (in related sectors).  This works out to roughly $4.8 million of GDP for each of those 480,000.  So… what happens to the rest of us? Are we supposed to wash their cars or something?
  • A lot of the jobs that are supposedly being offered by this budget, and by the immense focus on the tarsands (they take up a lot of the document), are jobs in the trades.  Yet we know we have a shortage of tradespeople in Canada, and that this will get worse (and is already getting worse) as tradespeople retire.  And the budget provides relatively little in the way of training people or encouraging them to work in the trades – beyond essentially continuing the existing programs which clearly aren’t working.  Now I think that we need more tradespeople – many communities in all parts of the country are hurting for them – I’m not challenging that.  I’m questioning why we’re putting so much effort into providing jobs in Alberta for people that are already overemployed everywhere else in the country.  If the advantage of the tarsands is that they provide jobs – why aren’t they the jobs that we actually need, jobs that Canadians know how to do or can/will be trained how to do?  The logic on these arguments just falls apart with only a slight tug of a loose string – if the argument that these projects provided lots of jobs held true I would understand it better but what’s the point of providing jobs we don’t need / won’t train people who do need work to do?
  • there’s a map on page 95 showing “current projects” that are supposedly being held up by regulatory delays.  I found it interesting that the Enbridge Gateway pipeline was on there but Keystone (which is the one proposed to go to the US) isn’t – has Keystone been ditched or do the Conservatives just not want people to realise that the pipelines aren’t to provide us with easier access to energy, but to provide other countries with easier access to energy?
  • One highlight (for me) was that they’re phasing out the credits for mining/oil/gas activities that have been in place for quite a time.  This was justified by the reduction of corporate taxes, which doesn’t make sense since in theory these credits were to encourage these activities, but at least they’re leveling the playing field – mining, oil, and gas companies (after they’ve found the oil – the exploration/development subsidies/credit/etc are all still in place, though at least one is to be phased out in a couple years) will now pay the same amount of taxes as companies in other less-destructive industries.
  • Another tax administrative thing, as of mid-April taxpayers (or at least businesses) will be able to email a request to the CRA and get a written electronic response so they have a little more comfort on tax treatments.  This could help to resolve the problem of misunderstanding or misinformation provided by CRA agents over the phone.
  • The budget says twice, without explanation as to how it will be accomplished, that the government will require charities to provide more info on political activities, including the extent to which these are funded by foreign sources. I’m very curious to know how they’ll decide which funds paid for which activities?  If I donate to the David Suzuki Foundation, and Bill Clinton donates to the David Suzuki Foundation, how do they know that his money paid for the political activities instead of mine?
  • They’re finally getting rid of the penny. I couldn’t be happier. But I worry about this line: “‎The government expects that business will apply rounding for cash transactions in a fair and transparent manner.”  The government won’t require that business will apply rounding for cash transactions in a fair and transparent manner (like every other country that has eliminated there 1-cent coins), it will just “expect” them to. Just like it “expects” they will pass on the savings from HST implementation.  Why not legislate it? How hard is that?
  • A rather scary thing, buried in a single paragraph in the 498-page document with very little discussion is that instead of the Canadian Food Inspection Agency (CFIA) doing it, consumers will be able to “bring validated concerns [re food labels] directly to companies.” How do I, as a consumer, VALIDATE that a food product was labelled incorrectly?!?! AFTER IT KILLS ME?  This is frightening – how is food labelling regulation / inspection an inefficiency? If I have an allergy, or a religious/ethical food requirement, the only way I can be sure I know what I’m eating is by eating it and hoping for the best?  And if it turns out the label is wrong, I need to validate that it’s wrong somehow?
  • Environment Canada & Natural Resources Canada will reduce travel & reduce their fleet by 160 vehicles… How??? By not bothering to look at the things they’re supposedly overseeing?
  • There’s also large public sector layoffs and cuts to the CBC proposed – which I’m sure others have discussed at length elsewhere.
  • I found page 226 both terrifying and encouraging.  Encouraging because government business travel will be reduced through the use of technology.  Terrifying because that technology is, effectively, telescreens.  Like, from 1984.  “Greater Use of Telepresence Technology – The Government will explore ways to increase its productivity by using telepresence and other remote conferencing technologies more extensively. Telepresence technology is similar to videoconferencing; however, it enables participants to see life-size, full-motion video with high-quality sound. The Government will develop a strategy to expand the use of telepresence technology and other remote meeting solutions. Investments in this technology will be financed by reductions in travel expenses.”
  • We’re finally (11 years after Australia did it) making the governor general pay taxes.  But, um, increasing his pay to compensate.  So… what was the point again?
  • Canada, under the Conservatives in their early years in power, eliminated withholding taxes on interest paid to foreign recipients.  And now it turns out that many corporations that are foreign-owned have started converting (effectively) their equity to debt – so they can pay profits out as interest rather than as dividends, and not pay any taxes on it when it leaves the country and claim a tax deduction in Canada for it.  So to fix this problem they created they’re tightening the thin-capitalisation rules… Which I suppose will work, but seems pointless given they didn’t need to exempt interest in the first place.

Overall, the budget was basically “tarsands jobs good, government jobs bad.”  I worry about our priorities in this country, I really, really, do.

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