The collapse in oil prices is showing up in federal and provincial budgets as governments grapple with deficits and debt burdens, suggests a new report from TD Economics.
The report examines the tax effects of the latest round of government budgets and the resulting tax policy changes.
“Against the backdrop of a collapse in oil prices, reigning in deficits and containing upward pressures on debt burdens remained the key theme of this year’s federal and provincial budget round,” the TD report says. “While spending restraint remained a mantra across provinces, several governments also elected to raise revenues through personal and corporate income tax increases,” it adds. Indeed, the impact of budget season depends very much on where Canadians live.
At the federal level, “the government managed to find room for promised tax relief” while also projecting a balanced budget for 2015-2016, the TD report says.
“Personal and general corporate income tax rates were left unchanged, but businesses now expect to benefit from a reduction in the small business tax rate. Meanwhile, changes to the contribution limit of the Tax Free Savings Account and the minimum withdrawal factors for Registered Retirement Income Funds will benefit households, particularly those with seniors,” the TD report adds.
Provincially, governments “charted different tax-policy paths based on their individual circumstances”, the TD report says. “Those hardest hit by the oil shock were left scrambling to address large budget deficits. Alberta and Newfoundland & Labrador erred on the side of raising personal and corporate taxes, while Saskatchewan achieved a fiscal surplus largely through spending restraint,” it adds.
Outside of the major oil-producing regions, most provinces “managed to either cut taxes or announce only modest revenue raising measures,” the TD report says. The notable exception to this, it adds, was New Brunswick, “which introduced two new personal income tax brackets in 2015, taking the province’s combined top marginal tax rate to 54.8% — the highest rate in Canada.”
In addition, some provinces announced plans for significant tax reforms in their latest budgets, the report notes. “For instance, Quebec and Nova Scotia look to be moving toward reducing personal and corporate income tax rates over the longer term, instead opting for more economically efficient forms of taxation, such as consumption taxes,” the TD report says.
“Although these reforms are not expected to considerably increase short-term revenues, they could eventually pay-off in the long run by improving the efficiency of the tax system, thereby helping to lift economic growth,” the TD report concludes.