The federal government tabled its Fiscal and Economic Update 2021 last week and the business community across Canada wondered if it had been all but forgotten. The update was heavy on COVID-19 relief spending and made direct references to the potential uncertainty ahead—including the looming economic impact of the omicron coronavirus variant, global supply chain issues, rising inflation and the cost of recovery efforts in the wake of the recent devastating floods in B.C.—but offered little in the way of tax changes or business-support measures.
Lofty oil prices and a robust labour market recovery have helped improve Ottawa’s balance sheet since last year, even if the projected budget deficits are staggering by non-pandemic standards. Higher-than-expected tax revenue and lower COVID-19 relief program uptake will help the government reduce the debt-to-GDP ratio faster, according to the latest estimates. As such, the update projects a budget deficit of $144.5 billion for the 2021-22 fiscal year (about $10 billion less than estimated in Budget 2021). That’s down from a whopping $354.2 billion last year and is projected to drop to $58.4 billion for 2022-23.
That it’s even possible to position those figures as a good news story is a reminder just how distorted our perception of federal finances has become since the onset of the COVID-19 crisis. Note that there is still barely a hint of a balanced budget in sight. The government predicts that a return to black will happen in 2026-27—light years away by fiscal standards. While the longer-term implications could be challenging, at least for now, the Trudeau Liberals are prepared to keep the spending taps open.
Few measures for business
Although the fiscal update proposed $71.2 billion in new expenditures over seven years, it was largely silent on previous campaign spending promises ranging from support for business to climate change initiatives and measures to deliver affordable housing. Those commitments, Finance Minister Chrystia Freeland indicated, would be addressed in the 2022 budget. The bright side for business owners was what was left unchanged—including personal income tax rates and capital gains inclusion rates. Even the introduction of a highly-speculated wealth tax was left off the table, at least for now. For those who love their pricey toys, a luxury tax on some vehicles, planes and boats is likely in the cards for early 2022, but its impact will be relatively minimal. There has also been no update on trust reporting rules for 2021.
At more than 80 pages, the Fiscal and Economic Update 2021 did make some notable commitments. The government proposed:
- An estimated $5 billion in relief spending to aid B.C.’s flood recovery efforts
- An estimated $40 billion in compensation for indigenous children and to reform the child welfare system
- $1.7 billion in funding to secure COVID-19 rapid testing supplies
- Up to $2 billion over two years for COVID-19 drug and treatment procurement
- To extend the simplified rules for deducting home office expenses, increasing the flat rate deduction to $500 annually for the 2021 and 2022 tax years
- To extend the caregiving and sickness benefit until May 7, 2022, with an extension of the duration of caregiving benefits (from 42 to 44 weeks) and sickness benefits (from four to six weeks). The proposed extension would cost $2.1 billion
- A program to return a portion of carbon taxes—estimated to be at least $200 million of proceeds—to eligible small to medium-sized businesses, beginning in 2022-23
- $1.3 billion over six years to fund Afghan refugee resettlement in Canada
- A new Small Business Air Quality Improvement Tax Credit that would cover 25 per cent of the cost of ventilation system and air filtration upgrades, up to $10,000 per location and $50,000 in total
- $110 million to improve school ventilation across the country
- $70 million to enhance ventilation in public buildings such as hospital and libraries
- One-time payments to Guaranteed Income Supplement and Allowance recipients who received the Canada Emergency Response Benefit (CERB) or the Canada Recovery Benefit (CRB) in 2020. The measure is projected to cost $742.4 million
- $60 million to support live performance arts industry workers
- $50 million to relieve supply chain congestion at Canada’s ports
- $85 million to enhance immigration application processing to help address labour shortages
- $67.9 million in debt relief to students who were required to repay Canada Emergency Response Benefits
- To expand the Eligible Educator School Supply Tax Credit to allow teachers to claim a refundable tax credit of 25 per cent of up to $1,000, an increase from the current 15 per cent
As we note in our latest newsletter significant tax changes are likely on the horizon. In the meantime, entrepreneurs can focus on navigating their organizations through the rest of the COVID-19 crisis without fear of Ottawa taking a greater piece of their earnings. But some strategic tax planning could be in store in the near future.
The Liberal government made some bold spending promises during the last election. It won’t be long before they look to keep them.
For more information on the Economic and Fiscal Update for 2021, contact a member of our team.
Armando Iannuzzi, Co-Managing Partner