Wednesday, April 22, 2015

2015 Government of Canada Budget - My Thoughts

     As a Canadian working in the financial sector who has a keen interest in personal finance, there are very few days as important to my fiscal well being than federal budget day. After falling oil prices caused Joe Oliver, Canada's Minister of Finance, to delay his budget by several months, and with a fall election looming, yesterday's budget was full of goodies aimed at key constituents for the Conservatives, namely seniors and parents with families. Since my wife and I fall into the latter category of key constituents, there were a couple of perks for us in yesterday's budget.  Key among the goodies that impacted me were:

1. Increasing the Tax Free Savings Account Limit to $10,000 from $5,500
As a Canadian who saves and invests a substantial percentage of my earnings, the thought of being able to double the amount that can grow tax free is extremely appealing. Don't get me wrong, I know that only a small percentage of the population will actually be able to take full advantage of the $10,000 contribution room per year, but it's still a great perk for savers and investors. I'd argue that increasing the contribution limit on TFSAs could make our other main tax advantaged savings vehicle, Registered Retirement Savings Plans ("RRSPs") less relevant in the future. The flexibility that TFSAs provide regarding withdrawals (not taxed, no need to pay them back within a certain time frame) will appeal to younger savers who see RRSPs as rigid and irrelevant given their lack of faith in the concept of a government funded retirement.

2. An Enhanced Universal Childcare Benefit
Parents with children under the age of six will now receive $160 from the federal government each month to help offset the costs of childcare, as opposed to $100 previously. Although I'm not one to turn down "free money", I'd point out that $160 couldn't pay for childcare for one week in Ontario. Even under Quebec's subsidized childcare system, $160 won't go far at all paying for my son's care this coming fall. Pundits say that the Conservative government tries to encourage one parent to stay at home with the enhanced childcare benefit and income splitting. The NDP and Liberal parties in Canada have long proposed national childcare programs (similar to what we have in Quebec), but the Conservative party seems reluctant to consider such a costly program.

3. Decreasing the Mandatory Withdrawal Rate on Registered Retirement Income Funds
By the age of 71, senior must convert their RRSPs into registered retirement income funds ("RRIFs"). These RRIF rules required seniors to withdraw (and get taxed) on their funds at a rate of 7.4% at 71 and escalating to 20% by 94. Quite simply, with people living longer due to advances in the health, science, and technology, these mandatory withdrawal rates led to situations where seniors would outlive their retirement savings. The new mandatory withdrawal rates (5.3% to start increasing to 18.8% by 94) make a little more sense.

     I'd feel guilty leaving out the fact that income splitting for tax purposes, which my wife and I benefited from in fiscal 2014, remains a part of the 2015 budget. This was an incredibly controversial matter when introduced due to the high cost (~$2.2 billion per year) and relatively low percentage (estimated ~15%) of households who benefited.

     Putting aside my saver/investor persona for a second, and changing into full fledge accountant mode, I'd like to point out several points that really irked me about this year's budget.

1. You Don't Balance Budgets by Selling Assets and Cutting Contingency Funds
The government incorporated gains on their sale of General Motors shares (bought during the 2008 auto industry bailout) and cut a $3B contingency fund to $1B in order to balance the 2015 budget. Clearly, these methods are unsustainable, and can only be done once. Plus, I have to question a government who had a $3B contingency fund incorporated in previous budgets. To me, this is the equivalent of charging unforeseen expenses to "miscellaneous".

2. Announce Now, Spend Later
In terms of horrible political tricks, announcing major spending initiatives now, but not actually delivering the funds for years, is despicable. The Conservative government announced major spending on national defense, infrastructure, health care, and innovation...but don't expect to see any dollars invested in those key sectors until 2017/2018. Instead of ranting about this deplorable tactic, I'll simply say it amounts to false advertising.

3. Buying Votes
As alluded to in my opening paragraph, if you happen to be a senior, or be part of a younger family, the 2015 budget was aimed at you. You could go as far as to generalize that the Conservatives are trying to beef up support with seniors (who vote in higher proportions than most other age groups), soccer moms, and conservative Christians (the Conservatives stronghold in Western Canada). For the record, my vote has never been for sale, and despite the perks offered to me in budget 2015, I'll continue to vote for the best local federal candidate that I feel will represent my interests parliament.

     As tempting as it is to start a tirade on the 'Balanced Budget' legislation the Conservatives introduced, I'm going to steer clear of that. There's ample evidence that proves that such legislation is ineffective, not to mention disingenuous given the Conservatives' own fiscal record.

     Do any fellow Canadians have thoughts on the 2015 budget? Or am I the only one geeky enough to find it a compelling read? 

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