Following an election-friendly budget that intended to do good for investor’s saving’s plans, the federal government now looks to attempt to balance its books with future implications in mind.
Preliminary consultations are underway as federal Finance Minister Bill Morneau and his office work out the 2020 budget.
The domestic economy is susceptible to issues beyond Canada’s borders, such as trade wars. As the public meetings roll on, Morneau said that key focuses at the budget's genesis will be protecting the economy in the face of a growing economic slowdown and building environmentally-sustainable measures.
What could we expect?
During a period of slower economic growth, the federal government’s plan has been to keep the debt-to-GDP ratio on a downward trend.
The Parliamentary Budget Office released its outlook that projects a deficit of $23.3-billion in 2020/2021 and $19-billion 2021/2022. The Liberal’s 2019 election platform pledged $56.9-billion in new spending with tax cuts over four years. The PBO’s report forecasts the debt-to-GDP ratio had declining from 30.8% in 2020/2021 to 28.7% in 2024/2025.
Capital gains should be on the minds of many investors following the budget. If the government needs to meet its spending promises by using tax revenue, it could consider raising the capital gains inclusion rate. While capital gains are usually included in taxable income, it is often taxed at a lower rate. The inclusion is currently at 50%, which means half of someone’s capital gains would be taxable. Some parties want to move this rate higher or lower and if the Liberals want to gather support, they could swing one way or the other to secure favour.
In an interview with Investment Executive, Sun Life Financial’s director of tax and estate planning, Michelle Connolly said that the capital gains inclusion rate is always in the top five predictions in anticipation of the budget. She suggested that the Liberals could limit access to the capital gains inclusion rate to those who earn less than a certain income level, which would fit in their “Investing in the Middle Class” theme.
The Liberals were out to impress the public with their last budget before an election and it saw more than a few elements that investors likely appreciated. This time around, since they have lost the majority in the House of Commons, the party will need help from the opposition parties to pass the budget. The final budgetary blueprint is expected to be released this spring.
What are your expectations? Does this fit into your portfolio? Let us know in the comments below.