Federal Budget '08: The Highs and Lows

Though many are touting this one the "Seinfeld Budget - the Budget About Nothing", I have to admit, I was very pleased with most of the announcements made today by Finance Minister Jim Flaherty. Here are my highlights and low lights of Budget 2008-09.

What I liked

Tax-Free Savings Account [TFSA]: "Starting next year, Canadians aged 18 and older can save up to $5,000 a year in a registered Tax-Free Savings Account, a new vehicle that essentially allows people to enjoy the benefits of a tax-free offshore account as long as they want without sending their money out of the country."

This is an excellent policy proposal that not only encourages pro-growth and savings for Canadian families as well as individuals, it also offers a residual clause (three years), so if you fail to invest $5,000 in the first or second year, you can invest $15,000 in the third year without penalty. Grade A

Crown corporation to manage the EI fund: "The government is proposing a new Crown corporation to handle surpluses in the multi-billion dollar employment insurance fund and to ensure the money gets back to millions of employees and their employers. The surplus, starting with a reserve of $2 billion, would be used to pay for any increase more than 15 cents in annual insurance premiums levied on workers and companies and would be used to reduce premium rates in the event of economic upturn. Rates would be set with the aim of "breaking even over time."

This is excellent news, because as I've said in the past, high payroll taxes while running a huge surplus in the EI fund is nothing more than a "tax on jobs". Grade A+

What disappointed me

Modest spending increases: "Under Mr. Flaherty, the size of the federal government has grown by an astounding 14.8 per cent. [...] As prime minister, Paul Martin grew the federal government by 14 per cent over two years. Amazingly, the Conservatives have bested Liberal spending. This is a spend-thrift government.”

I saw Macleans' editor Andrew Coyne blowing another gasket on CBC, and I don't blame him or Williamson since the last three budgets were far from being fiscally conservative with increased spending. Grade C-

What I didn't like

Abandoning commitments on annual debt repayment: "Debt repayment, which has stood well above $3 billion annually for a decade, falls to $2.3 billion this year and $1.3 billion in 2009-10."

This is concerning, especially since the Government has left very little wiggle room in '09 between a possible balanced budget and running a deficit. I was hoping that the government would implement even stricter deficit cutting measures, maybe even a pledge to reduce it below the Maastricht guidelines like they have in Europe (i.e. the ratio of annual government deficit to gross domestic product (GDP) must be below 3% at the end of the preceding fiscal year. If not, it at least is required not to exceed the ceiling set at 3%). Grade C+

Canada Student Grant Program: "The Canada Student Grant Program will distributed according to income levels. Because the grants will be awarded each year of study, students will know how much to expect in support from year to year. The grants will range from approximately $250 per month for low income students to $100 per month for middle income students. 245,000 studens will benefit from the program each year."

Instead of reviving Chretien's ill-fated Millennium Scholarship Foundation, they shoould have looked at better ways to address post-secondary education and its funding. Grade F

Update

To see where all your tax dollars go, click here, as the federal finance department have created a really nifty interactive pie chart. (Kudos to Lee Harding)