Fall Federal Budget: Will Spending Be Cut?

Canada has historically presented an annual budget since Confederation in 1867, even through periods like World Wars and the Great Depression, but we have recently experienced the longest period without a full federal budget in our history. By the time the next one is brought down, expected in October 2025, it will have been 18 months since the controversial April 2024 budget which introduced the doomed capital gains inclusion rate hikes. What can we expect?

Private sector economists have revised down their outlooks for U.S. real GDP growth significantly since Budget 2011. Private sector economists expect growth of 1.6 percent for 2011 and 2.0 percent in 2012, down from 3.1 percent growth expected in both years in the budget In Europe, recent economic indicators, in particular indexes of manufacturing and service activity, suggest that the Euro zone may already be in recession. Meanwhile, Canada has signed an updated international agreement to combat cross-border tax evasion at the November 3 meeting of the G20 leaders to enhance information sharing. Said Minister Flaherty, "A secure tax base contributes significantly to a sound economy, which is more important than ever in these challenging economic times.î Tax evaders, beware. Additional Educational Resources: The Knowledge Bureau has added an update to its Cross-border Taxation course to cover the new US Tax Filing Requirements and Business Services Specialists Designation

Canada, along with Germany, will continue to enjoy the strongest growth on average in the G-7 over the 2011ñ12 period, however, despite this, private sector economists have revised down their outlook for real GDP growth in Canada since the 2011 budget, particularly for 2011 and 2012, as reported in this week's Updated Economic and Fiscal Projections. Real GDP in Canada is now expected to grow by 2.2 percent in 2011 and 2.1 percent in 2012, down from expectations of 2.9 percent and 2.8 percent, respectively, in the 2011 budget. As a result, the projected level of nominal GDP,the broadest single measure of the tax base, is now significantly lower than the planning assumption presented in the budget. As a result, the government has announced that it will reduce the maximum potential increase in Employment Insurance (EI) premium rates in 2012 from 10 cents to 5 cents and temporarily extend the enhancement to the Work-Sharing Program. Additional Educational Resources: Financial Recovery in a Fragile World Book; Distinguished Financial Advisor Workshop January  

According to a labour force survey, a 50-year-old Canadian man or woman in 2008 could expect to be in the workforce for at least 3.5 years longer than his counterparts in the mid-1990's. The average age of retirement has been stable since 2004 at about 62. Similar increases in life expectancy have stabilized the expected length of retirement at around 15 years for men and 19 years for women. Although hours of work must be taken into consideration, delayed retirement could mitigate some of the economic challenges of population aging the study revealed. With baby boomers staying put longer though, recent post-secondary graduates join the long queue waiting for job opportunities to arise. For more info: http://www.statcan.gc.ca/daily-quotidien/111026/dq111026b-eng.htm   Additional Educational Resources: Distinguished Advisors Workshop January and Master Your Retirement - How to Fulfill Your Dreams With Peace of Mind (2012 Version)  

  CRA has just announced the maximum contributory earnings for 2012 under the CPP, and  those figures generate a premium increase which at the maximum level will reach $2306.70 or $192.23 per month. Both employer and employee are required to contribution, which means that proprietors will pay $384.45 a month or $4613.40 when their contributory earnings are $50,100. The basic exemption remains at $3,500 (this amount has not been indexed to inflation for years) and therefore we see that premiums have actually increased by 4%. Meanwhile the expected rate of CPI inflation for 2012 has just been announced as well: it's 2%. That's quite a hike. This means that the maximum CPP pension for 2012 will be $986.67 per month. (Average of maximum pensionable earnings for last five years x 25% / 12 months)   Additional Educational Resources: Distinguished Advisors Workshop, Financial Recovery in a Fragile World book.  

General retrenchment of risk taking in the global economy has inhibited recovery in many areas. Uncertainty abounds in Europe, while weak consumer and investor confidence in the United States is expected to result in weak GDP growth. Sharp appreciation of the Yen is frustrating recovery and reconstruction in Japan, coupled with a decreasing demand for their consumer products. Growth in China, India, and other emerging markets is expected to slow to a more sustainable pace over the next year. While Canada is still in the eye of the global economic storm relatively, the domestic forecast has taken a turn for the worse since the summer. Domestic demand is likely to remain the primary area of growth, although at a slower pace than anticipated. Exports, on the other hand, are expected to remain weak, due to low foreign demand exacerbated by the persistent strength of the loonie. The Bank expects growth in Canada will be slow through mid-2012, but should pick up if the global economic environment improves and confidence is restored; it is projected that the economy will expand by 2.1 per cent in 2011, 1.9 per cent in 2012, and 2.9 per cent in 2013 with a return to full capacity by the end of that year. As a result of all of this, the Bank has decided to maintain the target for the overnight rate at 1 per cent and fiscal policies consistent with achieving the 2 per cent inflation target over the medium term. For more info: http://www.bankofcanada.ca/2011/10/speeches/opening-statement-83/ Additional Educational Resources: Debt and Cash Flow Managment, Financial Recovery in a Fragile World  

Let's pretend you are a prudent taxpayer, a paragon of fiscal responsibility. You follow every CRA bulletin and government statement in order to properly file your return accurately and timely every year. Last year however, you relied on advice that a CRA official gave to you over the phone regarding a special new tax credit you could be eligible for if you purchased qualifying ëgreen' home appliances. You sort of need a new refrigerator anyways and have been looking around, but you can only really afford the baseline model that does not qualify for this tax credit. As a result of relying on the CRA's advice though, you go and purchase a higher model, ëgreen' appliance which you have calculated will actually cost you slightly less after the tax credit; everyone wins! You are astonished to find that the Minister has disallowed your tax credit at the end of the year though- can he do that? It depends. Estoppel is an equitable legal doctrine that holds as follows: if one party makes a statement or representation of fact to another who subsequently relies on this information to their detriment, the person making the representation can be ëestopped' from reneging on their prior representation and hiding behind their literal, black letter legal rights (such as a contract for example). As an equitable doctrine, it infuses the harsh reality that can result from following the law with moral and ethical considerations that the judiciary have a wide discretion over and an even wider proscription of remedies for. Three factors give rise to an estoppel. First, there must be a representation, or conduct reasonably perceived as amounting to a representation, by somebody intending to induce a course of conduct from the person he is making the representation to. Secondly, the person to whom the representation is made must have relied on that representation, by act or omission, and thirdly, this must result in some form of detriment to that person. For taxpayers though, there is an important and pertinent rule within this doctrine: misrepresentations of law by government officials cannot give rise to estoppel. Therefore, misrepresentations and/or advice from the CRA based on their misinterpretation of taxation legislation cannot give rise to an estoppel. Now, this may seem truly unfair, and indeed it can have terrible results. However, the underlying theory is that, regardless of any egregious incompetent advice from government officials, estoppel cannot override the law of the land and the Minister is not bound to misapply the law. As a result, it is often said, incorrectly, that estoppel cannot be brought against the Crown in any circumstances. Estoppel can be brought against the Crown for misrepresentations of fact, but not law. For example, in Rogers v R (1998), a taxpayer relied on a statement made by a government official that the educational institution that he was thinking of attending was one in which a particular tax credit could be claimed. The taxpayer relied on this misinformation, because without it he wouldn't have enrolled, and it became detrimental to him when the Minister then denied his tax credit on the basis that his institution of choice did not qualify. The government was estopped from denying the taxpayer his credit because it would be unconscionable to do so and because it was a misrepresentation of fact, not law. The example above is analogous to Rogers and therefore the Minister could be estopped from denying your ëgreen' tax credit.   Greer Jacks   Additional Educational Resource: Evergreen Explanatory Notes, and Essential Tax Facts 2012