Budget 2005 Analysis

Just reading through the Budget technical documents

Some interesting concerns that the government specifically raises:

• Despite the still-encouraging growth outlook for the Canadian and global economies, there remain significant risks.
• In the near term, the large and persistent U.S. current account deficit presents a key risk. This imbalance could result in a further depreciation of the U.S. dollar against all major currencies, including the Canadian dollar. The speed at which the economy adjusts to an appreciation of the Canadian dollar and the magnitude of the adjustment are also uncertain.
• Over the medium term, the U.S. budget deficit remains the principal downside risk. If not corrected, the deficit could put upward pressure on interest rates, crowd out business investment and dampen growth in both the U.S. and Canada. Conversely, a serious effort to reduce the budget deficit could temporarily lower growth in the U.S., which would also negatively affect Canadian growth.
• While the risks to the outlook are negative on balance, a strong macroeconomic framework has improved Canada’s ability to deal with these risks should they materialize.

What is the common thread throughout those three risks? The US.

And people wonder why Canadians are so interested in what goes on in America…

More interesting stuff commitments that you may not see in the regular media outlets: [My Comments are in Brackets]

• Introducing a non-refundable tax credit to recognize specified adoption expenses, up to a maximum of $10,000, effective for the 2005 tax year and beyond. [Interesting in light of our previous discussion, might be another way to help those who would like children, but cannot have them.]
• $126 million over five years to support groundbreaking research in particle physics at the University of British Columbia’s TRIUMF science facility.[Cool]
• $165 million to Genome Canada to sustain its support for breakthrough genomics research.[Can you say Avian Flu Vaccine?]
• The corporate surtax will be eliminated and the 21-per-cent general corporate income tax rate will be reduced to 19 per cent, maintaining our tax rate advantage relative to the U.S.[Anyone else find it surprising that Canada has had lower corporate taxes than the US? How are they calculating that?]
• $200 million over five years and a total of $920 million over 15 years to further stimulate the use of wind power to generate energy. This delivers on the Government of Canada’s commitment to quadruple the Wind Power Production Incentive.[This has been widely reported but…]
• $97 million over five years and a total of $886 million over 15 years to stimulate the development and use of forms of renewable energy other than wind, such as small hydro, biomass and landfill gas.[this has not been reported at all. And shouldn’t be overlooked. I think the reason for the difference in funding is simply the perceived immediate benefit attainable with current technology. Small hydro and biomass, by definition are not large scale electricity producers, and hydrogen is still a ways off. One has to question why they would bother with the “15 years” point. Seriously… 15 years?]
• $425 million to support the immediate humanitarian response to the tsunami disaster and long-term reconstruction, including approximately $200 million to match donations made by individual Canadians.[Hooray for private Canadians donations!]
• $42 million over five years for increasing the diplomatic staff of Canada’s diplomatic missions abroad to strengthen our capacity to pursue a more engaged foreign policy and to represent Canada’s interests more effectively.[This is interesting… I wonder if we’ll hear more about this after the International Policy Review is finished]
• $3.8 [of the $13 billion] for capital and other projects to support new roles for the military identified in the upcoming defence policy review.[We await eagerly that review !]
• $1.0 [of the $13 billion] billion over five years in support of key national security initiatives.[which will be what?]
• Canada was the only Group of Seven (G-7) country to record a total government budget surplus in 2004, for the third consecutive year, and is projected to be the only country in surplus again in 2005 and 2006.[credit where credit is due, Bravo]
• The 2005 budget maintains the annual $3-billion Contingency Reserve. It also includes an additional amount for economic prudence to provide greater assurance that the balanced budget targets will be met. If not needed, the amounts set aside for economic prudence will be released to fund government priorities. The Contingency Reserve—if not needed to deal with unforeseen circumstances—will go each and every year to reduce the federal debt (accumulated deficit).[I did not know of this difference between the COntingency Reserve and the “Economic Prudence”]
• This budget reaffirms the Government’s objective set out in the 2004 budget to reduce the federal debt-to-GDP (gross domestic product) ratio to 25 per cent by 2014–15. As a result, debt-servicing costs will absorb a smaller share of revenues, placing the Government in a better position to deal with the fiscal pressures of an aging population.[Again, Credit where credit is due… that sounds like a plan I’d make for my own retirement, why not the Government too?]
• The federal debt (accumulated deficit) as a percentage of GDP is projected to fall to 38.8 per cent in 2004–05, down from its peak of 68.4 per cent in 1995–96….it is estimated that the federal debt-to-GDP ratio will decline to about 30.6 per cent in 2009–10.

Lots of stuff to digest there! And there’s more to come later!