The wish list sent by Canada’s financial services industry to the federal government is long and varied — from better tax treatment of capital gains to incentives for buying long-term care insurance. Nevertheless, the industry is hoping that Ottawa will adopt at least some of the recommendations it made during the pre-budget consultation process in the coming federal budget.
At the same time, financial services industry groups are urging the Conservatives to keep to their commitment of eliminating the deficit on schedule and reducing overall government debt.
“Prudent fiscal management is really important for building confidence among ordinary Canadians,” says Ian Russell, president and CEO of the Toronto-based Investment Industry Association of Canada, who lauds the federal government’s recent efforts to cut corporate tax rates and reduce the deficit. “And it boosts investor confidence, too.”
During the extensive pre-budget consultation, industry groups had advocated for a range of measures that they argue will provide incentives or clear obstacles for Canadians to save and invest. There is guarded hope that the feds will find room to introduce some of these measures, despite the considerable fiscal constraints under which the government is operating. At press time, the minister of finance had yet to announce a budget date.
“The government recognizes the importance of encouraging investment,” says Russell, adding that the IIAC has been in communication with the federal government over the past several months about its list of budget recommendations. “The highest priority on our wish list is some form of capital gains tax relief to promote investment, and I’m optimistic that we will get something in the budget.”
The IIAC has been advocating that the feds introduce a lower capital gains tax rate — even if it would apply only under certain conditions or for certain investments — in order to encourage Canadians to invest in growth.
“We would like to see a lower capital gains rate apply,” Russell says, “at least, to [the sale of shares of] small and mid-sized companies, which are having difficulty raising capital. The venture capital markets in Canada aren’t as effective as they could be.”
In addition to the IIAC, other key industry groups also have made pre-budget submissions.
The Toronto-based Investment Funds Institute of Canada argues that mutual funds ought to receive the same tax treatment regarding the GST and HST as do other financial products. IFIC also is asking that income-splitting of RRIF income be allowed to commence at age 55.
Toronto-based Canadian Life and Health Insurance Association Inc. is asking the feds either to offer additional tax and financial incentives for Canadians to purchase LTC insurance or establish a program to help taxpayers with saving for these needs.
The Canadian Bankers Asso-ciation would like to see changes in Canada’s system of international taxation that would make Canadian firms more competitive with foreign ones.
And most financial services industry groups also laud the government’s moves to establish pooled registered pension plans and have offered suggestions on how to make PRPPs as effective as possible.
Despite the various recommendations coming Ottawa’s way, however, the feds are likely to remain cautious in drawing up the budget and is not expected to give the financial services industry a big win through a new program or initiative.
“I’d be surprised to see any significant moves in the area of investment incentives,” says James Brander, a professor with the Sauder School of Business at the University of British Columbia in Vancouver. The federal government, he says, will be looking to find a balance between deficit reduction and not cutting spending too far or fast, lest it endanger the fragile economic recovery.
In recent statements, federal Minister of Finance Jim Flaherty has suggested that Canadians needn’t worry about “draconian” cuts in the upcoming budget, that he probably won’t introduce any higher taxes and that the government will continue to take a “prudent” approach to Canada’s fiscal health.
One issue the feds have raised recently is the possibility of a significant change to the old-age security program — specifically, raising of the age of eligibility from the current 65 years of age. The government has indicated that such a change could be set to begin several years from now, thus protecting people who face imminent retirement.
Although the possibility of change to the OAS would be controversial, the Conservatives, who now enjoy a majority, are in an ideal position to make the change, Brander suggests.
“It’s just demographics,” says Brander, who suggests that an aging population and longer life expectancy for Canadians makes the need to raise the retirement age a necessity. “Sooner or later, it has to be done.”
Should the government make changes to OAS, it may look for ways in the budget to help Cana-dians make up the shortfall, one observer suggests.
“If there is going to be a change to the public retirement system down the road,” says Adam Fremeth, assistant professor of business, economic and public policy, at the Richard Ivey School of Business in London, Ont., “then the government is only going to look better if it is able to shore up any sort of incentive for private savings. But I wouldn’t expect to see any dramatic change [in this budget] that would take a large amount out of tax revenue.” IE