More Deficits:  Tax Revenues Down, EI Benefits Up

The Minister of Finance, The Honourable Jim Flaherty, has once again released the Fiscal Monitor, this time for the three months ending June 2010, announcing a deficit of $2.8 billion for the first quarter of the 2010-11 fiscal year, compared to a deficit of $5.0 billion for the same period ending June 2009. Although at first glance this looks like good news, we need to remember that for the same period in 2008 there was a budgetary surplus of $2.9 billion.

During the period personal and corporate income tax revenues were decreased by 3.4% and 5.1% respectively. Other revenues consisting of net profits and revenues from Crown corporations and returns on investments were down as much as 15%. EI premiums revenues were up $11 million, just under a 1% increase.

What does this mean to the average Canadian?

As discussed previously in the Knowledge Bureau Report, today's deficits are always of concern for several reasons:  will they become the taxes of tomorrow?  This is of particular significance to the ten million or so baby boomers who make up approximately one-third of our population and just under 50% of the tax filers, who may be concerned about the future purchasing power of whatís left of their retirement savings.

By the year 2011, the first boomers will reach age 65. Those aged 65 and over, according to Infrastructure Canada, are the most intensive users of the health care system, a financing burden yet to come for Canadian governments. What effects will this continued deficit spending by both federal and provincial governments have on public pensions and the health care system? How should elder Canadians prepare for higher costs of medical treatments, hospital care or the requirement for private home assistance resulting from an overburdened health care system?

A review of retirement income plans, critical health care plans, family succession and estate plans would be timely in an attempt to better understand financial needs for a future with less government capacity to assist and the possibility of increasing taxes on income or capital.  What can be done today to plan for these uncertainties when returns on investments are minimal and inconsistent?