August 25, 2014

Opinion: Expected budget surplus gives hope for future tax reductions

By Kevin Falcon, Special to the Vancouver Sun, August 22, 2014

Eight years ago, former federal Minister of Finance Jim Flaherty began an annual tradition of bringing together a high-powered group of business and community leaders from across Canada for a two-day policy discussion.

The purpose? He was looking for direct feedback from across Canada on economic policy, taxation issues, obstacles to growth and ideas for improving the nation’s economy.

When Joe Oliver was appointed to replace Flaherty as minister of finance, he wisely continued the tradition.

I had the opportunity to participate along with 15 other leaders from across Canada in this year’s policy forum which took place in Wakefield, Que., on Aug. 12 to 13.

The gathering operates under Chatham House rules, which require participants to not reveal any details that would identify comments or ideas to specific individuals. The goal is to encourage candour.

As a former minister of finance myself and now an executive with B.C.-based Anthem Capital Corp., I welcomed the opportunity to share my own B.C. perspectives based on my public and private sector experiences.

First the good news. Minister Oliver advised that Canada is poised to deliver a budget surplus of at least $6.4 billion early next year. I expect the government will do even better when factoring in its $3-billion forecast allowance cushion. This will place Canada alone with Germany as the only G7 countries who have managed to balance their annual operating budgets. The minister further advised that Canada will reduce its net debt-to-GDP ratio (a key measure watched by credit rating agencies) from the current 33 per cent to 25 per cent by 2021. To put that into perspective, the United States has a net debt/GDP ratio of 88 per cent, France 84 per cent and Italy 103 per cent.

Minister Oliver also advised that the government was committed to further tax relief for Canadians. This is a critical issue for our business community. Federal governments past and present have methodically reduced the general corporate tax rate (for larger businesses) from 29 per cent to its current 15 per cent level. The small business tax rate has fallen to 11 per cent and the small business income threshold has increased to $500,000. Combined with some provincial business tax reductions, Canada now enjoys among the most competitive tax regimes in the developed world. Participants strongly encouraged Flaherty to continue reducing the tax burden on families and to consider selective tax relief for business sectors that would generate the greatest economic return. I was encouraged by his receptiveness to these suggestions.

Many more ideas were put forward on both tax and policy fronts.

The bad news is our world economy is still hobbled by what is often called a “balance sheet recession,” in which governments laden with large debts don’t have the fiscal flexibility to stimulate growth. Businesses however, increasingly enjoy strong balance sheets, but are cautious to invest their surplus cash given global uncertainties.

What does all this mean for our business community? Overall, a net positive. Canada appears willing to put more money into the pockets of families and small business, which will drive spending and improve consumer and business confidence.

Kevin Falcon is the former deputy premier and minister of finance for British Columbia. He is currently executive vice-president of Anthem Group, a B.C.-based company with over 200 employees and investments throughout Western Canada and the United States. He sits on numerous boards including acting as an honorary board member of the Surrey Board of Trade.

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