On March 22, Finance Minister Bill Morneau presented the new Liberal government's first federal budget. While promising to grow the middle class through an array of widespread investments in Canada's future economic and social well-being, the federal budget focuses spending on job creation, re-energizing the economy and fortifying Canada's social fabric. With some of the budget's key deliverables leaked in advance, no big surprises were revealed.

Forecasted deficits

As widely anticipated, the budget projects significant deficits over the next several years.

The government forecasts a deficit of $5.4 billion for 2015–16, and projects additional deficits of $29.4 billion (2016-17), $29 billion (2017-18), $22.8 billion (2018-19), $17.7 billion (2019-20) and $14.3 billion (2020-21).  Although the Conservative government passed the Federal Balanced Budget Act in June 2015, the Liberals have indicated that they will propose legislative repeal of this Act.

On a positive note, Canada is starting from a relatively strong fiscal position in 2016, with the lowest total government net debt-to-GDP ratio of all G7 countries. This ratio is projected to decline beginning in 2017–18 to the end of the fiscal horizon.

Small business tax rate

From a business perspective, although last year's budget announced a reduction in the small business rate from 11% to 9% over a four year period, this year's budget proposes that the small business tax rate remain at 10.5%. The budget also introduces changes to address concerns about partnerships and corporate structures that multiply access to the small business deduction.

Investing in infrastructure and innovation

The budget proposes to invest over $120 billion in infrastructure over 10 years. The plan includes a first phase of $11.9 billion over the next five years to upgrade and improve public transit systems, invest in water, wastewater and green infrastructure projects, and for social infrastructure investments. Phase two of the plan will include broader projects designed to reduce urban transportation congestion, improve and expand trade corridors and produce a cleaner low-carbon national energy system.

The government will also redesign and redefine how it supports innovation and growth, in partnership and coordination with the private sector, provinces, territories, municipalities, universities and colleges, and the not-for-profit sector through its "Innovation Agenda." This will include increased financing for fundamental research by $95 million annually and the investment of up to $2 billion over three years in a new Post-Secondary Institutions Strategic Investment Fund to modernize on-campus research, commercialization and training facilities.

Other tax measures

Late last year, the government implemented a number of the tax measures that were included in their election platform, as well as some new measures taking effect in 2016, specifically

  • a 4% increase in the top federal rate of personal income tax (from 29% to 33%) for taxable income over $200,000;
  • a reduction in the second-lowest federal tax bracket rate from 22% to 20.5%;
  • a reduction in the annual Tax-Free Savings Account (TFSA) contribution limit from $10,000 to $5,500; and
  • changes to several tax measures affecting Canadian-controlled private corporations (CCPCs) and other private corporations.

A number of additional measures were included in this year's budget and our full budget summary provides an overview of the budget's key tax measures..

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