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.
Final Thoughts
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?
I heard all sorts of things about the 67 limit at work. I wonder what it’s going to be at when I retire. I don’t hate it, and in fact if it will save us so much money I think it’s a good thing, but I’m in my early 20s so it’s a little scary to think of what age it will be in 45 years.
It will probably still be the same, or even lowered. The reason it is so dangerous right now is because of the weird and unique demographic bomb that is about to hit. Besides, CPP will still be ready and waiting according to the actuarials.
I am with you on #1 and 2. It does makes sense to raise the OAS as people are living longer etc. Plus we should as individuals be responsible and not rely on others to look after us later. I agree to that the EI program needs some changes. It is way to abused to date.
As far as cross border exceptions go, I think there is still work to be done. 800 is still too low for 7 days plus. It would be ok if after say 21 days or 30 days it increased again but the fact that this is the top frustrates me. It is the same if you go overseas too which again I think isn’t reasonable. When everything else is a globally run market, why must we be so restrictive with exemptions like this? Makes no sense. I would like to see more intervals created and higher amounts accordingly.
Good point on being responsible. I wonder though, if lowering the income thresholds would have been better? I’m still shocked that people making nearly 6 figures can collect welfare from the government.
Agreed, how is this not addressed?
You wouldn’t hear me complaining about increased exemptions. Although I’m not sure you would want to give huge incentives to stay out of Canada for a month at a time. An increase to the 7+ day exemption is probably going to be the next step I would guess.
It is good to learn a bit more about the Canadia budget – we at The Money Principle commented on the UK budget recently. I will take issue with your forth point, the one about the close to 20,000 government jobs going. SPF is right that you brushed this aside as ‘top heavy’ very quickly; our experience in the UK is that this causes great inconvenience and affects fromt-line services negatively. We are moving to a situation where Councils can’t do their jobs because one person is expected to do two of those and rubbish cillection is being done much less frequently that it probably should.
Small government is over-rated; governments shouldn’t be small or large – they have to be just right.
I intrinsically disagree with the premise that large governments can be good Maria because I believe that good=efficient. I have worked for the government in a variety of settings and I have seen an unbelievable amount of inefficiency at so many levels. I believe that humans respond to incentives. Government has no competition and no incentives to work very hard. Big government and isolated federal governments especially, are not accountable to anyone once they have “tenure.” We experienced around 50,000 job losses in the 90’s and Canada flourished as we crushed our deficit, I’m sure we’ll be ok this time as well.
You know my stance — eliminate the government. The only purpose of government should be to enable the protection of life and property and allow private enterprise to flourish. Of course Maria has a point, if the government traditionally provides a certain service you can’t just cut it off without a transition.
I don’t mind government as long as it is as close to efficient as possible. To me this means small, local and accountable. I agree with the obvious Conservative outlook that federal government needs to be made smaller.
The problem with applying efficiency measures to some of the services provided by government is that these are inappropriate. Services for the elderly and disabled, for instance. I was listening to a social worker describing how she has 7 minutes per houshold – this is efficiency that kills effectiveness because in 7 minutes one can’t offer what these people need most: human interaction and a bit of attention.
It is similar with university education; you will all probably agree that lecturing 600 students in a large auditurium (sometimes in two with video system) appears efficient; except that the students learn nothing and most are asleep at the end of it.
Efficiency is a wonderful thing when it doesn’t have negative effect on effectiveness. With the services goverments offer this often is the case.
Hi Maria,
I really love this comment because you just made one of the strongest arguments for voluntary cooperation (also known as the free market), and one of the best arguments against central planning.
You are right about the problems of efficiency measurements. How can a government bureaucrat decide what “efficient” means? How can they even measure? The answer is that… they can’t. Bureaucrats do not have the tests of profit and loss, and those who patronize their services only pay for the costs indirectly. Therefore, a bureaucrat’s only means of economic planning is by compliance to an extensive set of rules and regulations. It is impossible for them to deliver the best means of satisfying consumer demands, because they conduct their actions in a vacuum, isolated from the tests of the marketplace.
An entrepreneur, on the other hand, does not give two hoots about regulations, aside from the basic regulations that protect life and property and allow him to carry out a business without having to worry about enforcing his own law.
The real test if an entrepreneur is very simple: Either what he does satisfies the customers, or it does not. If it does, he makes money. If it doesn’t, he loses money and goes out of business. Whether that means he needs to spend more time with one-on-one human interaction is up to the consumer to judge. The consumer decides what the rules are, NOT the entrepreneur. That is the difference between an entrepreneur and a bureaucrat!
Without a free and open free market in a particular field or industry, the situation degenerates into one where 90% of the people get substandard service, and only the richest 10% who can afford to pay the inflated costs of a damaged and hampered market get superior service. This is seen most readily in the areas where government intervention is higher, such as medicine.
It doesn’t have to be direct government intervention, either — a governmetn subsidy to private business that inflates the cost of, say, corn, is just as much to blame as direct government intervention. Other regulations, such as the CRTC’s historic favoritism toward large companies, is just as much to blame. The real culprit here is the intervention against voluntary freedom of exchange, that is, the intervention against the right of people to make peaceful trades with one-another that do not hurt others.
When we go far enough down this path, we end up with 7 minute efficiency guidelines and hundreds of pages of bureaucratic regulations and rules, because the free market has been killed in favour of what bureaucrats decide. We are no longer in control of our lives; bureaucrats are. Only the richest of the rich can afford to buy their way out of this situation, and worse, the politicians blame this situation on peaceful voluntary exchange when clearly, it’s their intervention that is to blame!
Well said FG. Anecdotally, there are MANY areas that could use trimming before we cut home services to seniors. Just in the government agencies I have been a part of – The CRA, CBSA, and various school divisions, I couldn’t possible list all the incredible wastes. When you are spending money that is not yours, have no incentive to be honest and efficient, and have no competition, it doesn’t take a genius to figure out that things will not go well.
Some really good points here…..but for the life of me, I still can’t understand why the government refuses to address the income limits on OAS. If it wasn’t a social program, it might be different but for a couple to be able to make over $100,000/yr. and still collect OAS just boggles my mind. Only thing I can figure is that someone’s mother (or father, aunt, uncle…..) sits on that line and they don’t dare mess with family…:-)
Mary
Also in agreement with this. Another excellent comment. Props to MUM for stirring up a good debate, too. :)