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Federal Budget 2013 Key Points

Mar 21, 2013 07:20 PM
 
Federal Budget 2013 Key Points - image 0

Written by CUPE's Senior Economist, Toby Sanger

 

The 2013 Federal Budget should be a considerable disappointment: it involves essentially no additional funding and actually reduces overall spending in future years—which means this budget will effectively do little or nothing to grow the economy.

This budget actually cuts federal infrastructure funding for municipalities and provinces through the Building Canada Fund (BCF) from presently allocated levels by $250 million per year and is back-end loaded so there will be very little available for the next two years. This is far from the $2.5 billion increase in funding for infrastructure that the FCM and its allies called for. It also renews the P3 Canada Fund. Reduced funding under the BCF will force more communities to apply for funding that is only available for P3s. On the positive side, the federal government has committed to index the Gas Tax Fund by 2% and provide municipalities with greater flexibility in how these funds can be spent.

The much promoted Canada Job Grant for training takes money away from funding to provinces for literacy and essential skills, under current Labour Market Agreements and essentially puts it under the control of employers as it must be cost matched by employers and provinces. The federal government has made a lot of noise about labour market and skills shortages, but the government’s own projections show that the unemployment rate will remain high for foreseeable future, not declining to 6.4% until 2017.

There are some new funding announcements for manufacturing, but much of this is a reallocation: more money is going into expanding and extending the EI tax credit for small business.  

Unpleasant surprises include the phasing out of the 15% federal tax credit for Labour Sponsored Venture Capital Corporations: this appears to be a politically motivated move at a time when the federal government is taking other steps to encourage venture capital. The additional corporate tax deduction for credit unions is also being phased out.

On the positive side, there are no large scale public spending cuts or cuts to transfers—although some of those are expected to decline with lower rates of inflation and GDP growth.

 

Highlights Main Items:

  • New Canada Job Grant for short duration training of unemployed or underemployed at eligible training institutions: maximum of federation contribution of $5,000 per person to be cost matched with employers and provinces. Funding for this takes $300 million a year away from existing transfers to provinces through Labour Market Agreements that funds workplace literacy and essential skills training for the unemployed, those not eligible for EI, and others. Detailed of this will be developed in consultation with provinces, employer associations and labour organizations. Will start in 2014/15.
     
  • Renewal of Building Canada Fund for 10 years, but at $250 million per year less than the existing program provides. Review in five years could lead to increased funding. This is considerable less than the $2.5 billion increase in funding the FCM was calling for.
     
  • On the positive side, the federal government has indexed the $2 billion Gas Tax Fund to increase by 2% annually and made the 100% municipal GST rebate permanent (both repackaged into “Community Improvement Fund”) and provided more flexibility in where these funds can be spent, including public transit.
     
  • The P3 Canada Fund has been renewed with funding of $1.25 billion over five years and the federal government will extend requirement for P3 screening to all projects over $100 million funded under the Building Canada Fund.
     
  • No large new spending cuts or increases, most new spending is reallocated.
     
  • Phase out of federal tax credit for Labour Sponsored Venture Capital Corporations and for credit unions, elimination of tax deduction for safety deposit boxes; new measures against tax evasion and avoidance, reduction of dividend tax credit gross up.
     
  • New super tax credit for first time charitable donors; extension of accelerated CCA for manufacturing; increase in lifetime capital gains exemption; elimination of tariffs for sports equipment and baby clothes.

 

Economic Outlook:  

  • Forecast real GDP growth of only 1.6% this year, rising to 2.5% in 2014 and 2.6% in 2015: this economic growth is far slower than previous recoveries.
     
  • Unemployment rate to average 7.1% in 2013, decline to only 6.9% in 2014 and 6.7% in 2015. Clearly there isn’t much of a labour shortage with still high unemployment rates.
     
  • CPI inflation to average 1.3% in 2013 and then average 2% thereafter.

 

Fiscal:

  • Still planning on a balanced budget (barely) by 2015/16; revised deficit of $18.7 billion in 2013/14; $6.6 billion in 2014/15 and surplus of $0.8 billion in 2015/16, although these include $3 billion adjustment for risk.
     
  • Base spending lower largely because of lower inflation; revenues also lower.
     
  • This budget increases planned spending slightly this year by $400 million, but reduces it in future years by more.

 

Spending Cuts:        

  • No major federal spending cuts announced: $60 million per year from Canada Revenue Agency, $35 million per year from Dept of Fisheries and Oceans, savings from less travel and shifting to electronic publishing.

 

Infrastructure Funding:      

  • Renewal of Building Canada Fund, but only at $1 billion per year for provinces and municipalities committed for 10 years, down from $1.25 billion and back end loaded: less than $200 million per year for next two years. Not only does this fall far short of the additional $2.5 billion proposed by the FCM and its partners through the Municipal Infrastructure Forum, but it is a cut from currently allocated amounts.
     
  • $4 billion over 10 years for national infrastructure component: also back-end loaded: only $15 million per year for next two years: this includes $155 million over ten years for First Nations infrastructure.
     
  • Repackaged Gas Tax Fund and GST rebate into “Community Improvement Fund” : only positive thing here, is that it is indexed at 2 percent per year.

 

P3s:

  • Renewal of $1.25 billion funding over five years for P3 Canada Fund.
     
  • Require P3 screen for projects with capital cost of over $100 million under new BCF.
     
  • $10 million from P3 Canada Fund to cover 50% of costs for assessment of P3s by municipalities, provinces and territories (to max of $200,000 per project).
     
  • Indication of support for social finance, but no further specifics.

 

Training and Jobs:  

  • $300 million allocated from transfers to provinces to a new “Canada Job Grant” to provide up to $5,000 from the federal government, per person, for short-duration training at eligible training institutions; must be matched with contributions from both employers and provincial/territorial governments.
     
  • Design of grant to be negotiated with provinces and territories in consultation with employer associations, educational institutions and labour organizations. It will not be available to public sector employers. The definition of eligible training institutions may include on the job training by employers. 
     
  • This takes away $300 million in funding that the federal government provides to provinces for important literacy and numeracy skills training under existing Labour Market Agreements—and which CUPE has been involved in. It will also require provinces to match funds provided through the new Canada Job Grant.
     
  • Some positive measures with apprentices: harmonization of requirements and increased use of apprentices through federal procurement.
     
  • Labour Market Development Agreements with provinces will be renegotiated to better re-orient training to labour market demand.
     
  • Pursual of social finance partnerships with non-profit and private sector in literacy and essential skills following these cuts.
     
  • Renegotiation of Labour Market Agreements for Persons with Disabilities.
     
  • Renewal of labour market funding for persons with disabilities and Aboriginal peoples.
     
  • Very little of the above is new funding: over 80% is reallocations.

 

Industry & Business Support:       

  • Expansion and extension of the temporary Hiring Credit for Small Business to larger smaller businesses.
     
  • Extension of accelerated CCA for manufacturing M&E for two years.
     
  • Additional support for venture capital, but elimination of tax credit for LSVCCs.
     
  • $200 million over five years for an Advanced Manufacturing Fund, coming from renewed funding for the FEDA for southern Ontario.

 

Federal Capital Spending:

  • Limited increases in federal infrastructure funding: $4 billion over 10 years, backend loaded: includes additional funding for the Windsor bridge P3, a bridge to Nun’s Island while the Champlain bridge P3 is being built and funding for VIA rail and passenger service to remote communities.

 

Aboriginal People in Canada:

  • $241 million over five years for a New First Nations Job Fund to provide job training for youth on reserves receiving income assistance, but this is only available for reserves who make it mandatory for young income assistance recipients to receive this training.
     
  • Funding for land claims resolution and renewal of time-limited funding for first nations policing; additional funding for health care on reserves, including for mental health.
     
  • Virtually all funding for Aboriginal Canadians, including labour force measures, is either reallocations or renewals.

 

Education:    

  • $37 million in additional annual funding through granting councils to colleges and communities for research partnerships, and $20 million /3 years for SMEs to access research at universities and colleges.
     
  • Funding for Canada Foundation for Innovation, Genome Canada, NRC for innovation.
     
  • No other additional funding for PSE.

 

Immigration: 

  • Proposes measures to ensure employers only hire temporary foreign workers when there are no Canadian workers available and to charge user fees for employers using the program.
     
  • Expansion of temporary resident program, for international students and the citizenship.

 

Health:           

  • Nothing of substance additional for health care.

 

Environment:           

  • Renewal of funding for a variety of programs.

 

International Development:

  • Amalgamation of CIDA with DFAIT, tying aid to Canadian commercial activity.
     
  • Withdrawal of general preferential tariff for a number of developing countries.

 

Women:

  • No funding in areas of particular importance to women, such as child care, and social services.
     
  • The overriding focus is on jobs in sectors where women are underrepresented and face larger pay gaps, including the private sector, manufacturing and resource industries.

 

Labour:         

  • No specific attacks on labour; elimination of tax credit for Labour Sponsored Venture Capital Corporations.
     
  • Will align employee compensation and pension contributions at crown corporations with federal public services.
     
  • Vague announcement that the federal government will propose changes to its labour relations regime.

 

Employment Insurance:

  • Extends and expands the $1,000 Hiring Credit for Small Business with EI premiums of $15,000 or less against the cost of their EI premiums.
     
  • Renegotiation of the LMDAs with provinces funded by EI premiums.
     
  • Five cents a year increases to EI premiums until 2015/6 and then expect to lower premiums when the cumulative deficit of the EI fund is eliminated after that. 

 

Pensions:      

  • Promotion of PRPPs; proposes to introduce changes to the distressed pension workout scheme after consultation.
     
  • No improvements or other changes to CPP.

 

Housing and Homelessness:

  • Renewal of existing housing programs with municipalities; $119 million over five years for homelessness partnering strategy and renewal of Investment in Affordable Housing.

 

Transfers to Provinces:

  • LMDAs to be renegotiated with provinces, but without input of labour.
     
  • LMA funding to be directed to new Canada Job Grant following negotiation with provinces, territories, employers and labour.

 

Trade:

  • Promotes trade agreements but no new announcements, except elimination of tariffs on sports equipment and baby clothes; elimination of preferential tariffs for some developing countries and amalgamation of CIDA with DFAIT.

 

Taxation:                   

  • Phasing out elimination of federal 15% tax credit for Labour-Sponsored Venture Capital Corporations (LSVCCs) by 2017: dropping to 10% in 2015, 5% in 2016 and zero in 2017.
     
  • Phasing out of additional tax deduction for Credit Unions.
     
  • New additional 25% super credit for first time charitable contribution donors on up to $1,000: total credit, 40% for donations of $200 or less and 54% for between $200 and $1000.
     
  • Elimination of tax deduction for safety deposit boxes.
     
  • Elimination of tariffs on baby clothes and sports and athletic equipment.
     
  • Increase in lifetime capital gains exemption from $750,000 to $800,000 effective 2014.
     
  • Extension of accelerated CCA for manufacturing M&E and broadening of accelerated CCA for clean energy.
     
  • Range of measures to reduce tax avoidance, including payments for those who turn in international tax cheats: although they are proceeding with cuts to CRA.