Nothing like mixing a little politics with your personal finance to get the old blood flowing eh? The Conservatives’ 2012 Canadian Federal budget, and their overall vision for Canada came out on Wednesday, and I believe that there is a lot more to like than there is to dislike. Unsurprisingly, the Tories are aiming to slay our national deficit just in time for an election in 2015. I think this is a worthy goal, and the fact that we are on pace to accomplish it while maintaining the lowest debt-to-GDP ratio in the G8 bodes very well for us. On a macro level (one that often gets lost in this 24-7 news NOW era) I believe this budget keeps Canada competitive on a global scale, while trimming expenses as gently as possible. No doubt several people will disagree with that assessment (new NDP leader Thomas Mulclair foremost amongst them), but I believe this document is practical and precedent-setting in positive ways, even if I don’t agree with every aspect of its execution.
Here are some of the highlights and how they will likely affect the personal financial situations of Canadians:
1) OAS and GIS push back to 67 gets phased in after the blessed boomers get in under the bar.
If I didn’t generate enough controversy asking whether the Old Age Supplement (OAS) is a right, this one puts me over the top. This policy is in line with developed nations everywhere. It makes perfect sense in an age of increased life expectancies, and it puts the responsibility of saving for retirement back on the individual. Obviously this will affect the planning of many middle-aged people, but with plenty of notice, and a solid Canadian Pension Plan (CPP) foundation that can still be drawn on without change, I expect most people will notice it very little within a few years. Personally, I would like to see CPP pushed back as well, with the OAS clawback more heavily enforced at lower income levels (people making 100K a year don’t need more government money), and a more assertive Government Income Supplement (GIS) to balance everything out, but that’s just me.
2) Changes to Employment Insurance (EI) make it harder to systemically abuse the system.
Again, I feel like this is a step in the right direction, but a program that needs a total overhaul. The big picture idea of labour mobility needs to be addressed. EI is a great social program to be able to offer, but in order to guarantee it is sustainable for all Canadians to enjoy common sense modifications must take place. To the average Canadian, this should mean very little other than if you rely on EI, you should consider trying to find a job if at all possible (even if that means moving). Incentives to get back to work by leaving more money in the pocket of the EI recipient have been introduced.
3) Cross border shopping exemptions upped in the 2012 Canadian Federal Budget.
This is a personal finance lover’s dream. Comparison shoppers know by now that there are definitely savings to be found in the large American market (for example, buying a Subaru). As someone who has lived near the US border most of his life, I have experienced US shopping mania first hand. The same-day exemption is set to rise from $50 to $200, and the 48-hour and 7-day exemptions will rise to $800 from $400 and $750 respectively. If you have no moral qualms about supporting one nation’s economy over another, you can take huge advantage of lower prices, and lower tax rates. Some states even have programs where you can apply to get your American taxes back. Canadian retailers have long
4) 19,200 Jobs, CBC funding cut, and the penny abolished!
It is no surprise to most that this budget included some light (relative to Europe and the USA anyway) austerity measures. If you haven’t quite picked up on my bias yet, I’m a small government guy at heart, and I believe these are all good things! The vast majority of those 19,200 federal jobs, are top-heavy bureaucratic positions that speak to the excesses that commonly follow the involvement of government. I honestly believe that front-line service levels will hardly be touched. The penny has become outdated, and we will wistfully wave goodbye to it. The penny costs more to produce than it has value! Finally, I am extremely glad to see the CBC’s funding cut. Having a national television station made sense when many parts of Canada had no other option. In today’s information-laden world, I think there are far greater priorities then a publicly-owned TV station. The effect on the wallets of individual citizens will be sustained tax levels, and a reduced debt burden on a younger generation that simply can’t afford it.
SPF: The jobs that are being cut have not yet been determined so I can’t see how labeling them as “top heavy bureaucratic positions” can be justified. 600 of these jobs are executive positions and the actual number of jobs being “cut” is 12,000 with the remainder being jobs reduced via attrition. Regardless, the fears of 60,000 job cuts did not become reality.
5) A boost given to native education, innovation, and young person employment.
These are three great areas to invest in for the future. I have already heard arguments that these commitments don’t go far enough, and I think there is probably some merit there. Hopefully these areas will continued point of emphasis in a couple years when we tame the deficit. Help to those parts of the population that need it most, and a sustained effort to improve the labour force (and opportunities for them) will help all Canadians going forward as we lessen reliance on social programs, and increase our tax base.
Just so I can say I’m not in the Tories’ back pocket, I must say that this deficit has made it increasingly apparent that slashing the GST by two percentage points made little sense. I understand why they did it (cheap political points), but taking 11 billion out of the revenue side of the equation was just much too high a sacrifice. This is typical clash of rational economic theory versus consumer behaviour. The GST is a consumption tax and makes sense on so many levels; however, it is also highly visible, and this makes it an easy populist target in political terms. Just think, with the current cuts that the Harper Government has identified, if we had kept the 7% GST rate, we would be running a surplus in two years or so! I will likely do a post on this in the immediate future, because I find it a fascinating case of hidden taxation versus visible taxation. Also interesting to note the cut to armed forces funding after championing that very cause in this government’s first term in power.
What are your thoughts on the 2012 Canadian Federal Budget?