Finance Minister Ralph Goodale is predicting balanced budgets for the next two years, in part because of lower equalization payments to the provinces. For the fiscal year ending March 31, 2004, the payments were reduced by $2.4 billion. Lower growth in Ontario reduced average provincial revenues and thus the payouts to the “have not” provinces. The budget assumes, however, the payments will grow from this lower base in the future.

With the lower equalization, Goodale has been able to fund $2.2 billion in new initiatives in 2003-04 and $2.5 billion in 2004-05, while also including $3 billion in annual contingency reserves for unexpected expenditures and $1 billion in economic prudence should revenues be dampened by weaker-than-anticipated economic growth.

Although there are numerous measures included in today’s federal budget, this is not a typical election budget — despite the likelihood of a spring election. Most measure do not requiring significant spending and aren’t considered “goodies.” Rather, they deal with widely accepted priorities.

The biggest measure bestows full GST rebates for municipalities, vs a 57% rebate previously, costing the feds $580 million in 2004-05 and $605 million in 2005-06. The $1-billion infrastructure program for cities, announced in the 2003 budget, is also accelerated but it will take a few years for the project to get going. The budget also confirmed that the municipalities will receive a portion of annual gas tax revenues, when this is worked out with the provinces.

As expected, Ottawa did not change the tax treatment of business income trusts but it is limiting pension funds to holding no more than 1% of their assets in these income trusts and to owning no more than 5% of any one income trust.

The budget also confirmed that the government will sell its remaining 17% of Petro Canada in 2004-05 which, it expects, will raise $2 billion.

The budget also announced that Finance Canada agrees with the wise persons committee that there should be a single securities commission and will start negotiating with the provinces this year to achieve this.

Also, according to the budget, the government continues to examine the possibility of introducing tax pre-paid savings accounts.

Other measures include:

  • Capital cost allowance rates for computers goes to 45% from 30% and data network to 30% from 20%. This will cost Ottawa $110 million in 2004-05 and $255 million in 2005-06.
  • The small business deduction rate limit goes to $300,000 in active business income in 2005, a year earlier than announced in the 2003 budget.
  • Monetary fines are no longer tax deductible for corporations.
  • The compliance rules governing the tax-exempt status of charities are to being made more flexible. The government is also changing the rules about how charitable organizations disperse funds.
  • Canada Learning Bonds of up to $2,000 will be provided for children in low-income families. This will cost $85 million in the first two years.
  • Defence gets an additional $277 million in 2004-05 and $85 million in 2005-06, mainly for the Afghanistan and Haiti missions but also for tax relief for those serving in those areas.
  • Research foundations get an additional $170 million and $202 million in the next two years.