2019 Federal Budget: Gearing Up To Compete?

March 19, 2019

Finance Minister Bill Morneau tabled the 2019 federal budget on March 19. This budget, the final one before the federal election scheduled for the fall, introduced several key measures affecting the bottom line of both businesses and individuals.

The federal government expects a deficit of $14.9 billion for the 2018-19 fiscal year, down from the original projection of $18.1 billion in last year's budget, and $19.8 billion for the 2019-20 fiscal year, which includes a $3 billion contingency reserve. The deficit is then expected to decline to $9.8 billion for the 2023-24 fiscal year. Finance Minister Morneau did not include a timeline for balancing the budget.

Highlights of the 2019 federal budget include:

  • Skills training
  • National pharmacare
  • Affordable housing
  • Canadian competitiveness

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Skills training

What the budget said: The federal government introduced the Canada Training Benefit. This benefit has two components: 1) a new, non-taxable Canada Training Credit to help with the costs of training throughout an individual's career; and 2) a new Employment Insurance Training Support Benefit to provide income support when an individual takes time off work. The Canada Training Benefit would not be tied to a specific employer, giving workers maximum flexibility and mobility. The budget also contained measures to improve the Canada Student Loans Program, and enhanced support for apprenticeships in the skilled trades.

What it means: Canadian business owners and their employees face historic changes in the skills they need to get the job done. Schools are turning out top tech graduates to launch their careers in Canada's burgeoning tech sector. However, more needs to be done to support mid-career workers who lose their jobs to automation and other workforce shifts. While the budget proposals are designed to help upgrade skills, employers will be required to allow their employees to take time away from work for training that may not be aligned to the employer's needs.

National pharmacare

What the budget said: The federal government introduced the Canadian Drug Agency, with a mandate to assess the effectiveness of new prescription drugs, negotiate drug prices on behalf of Canada's drug plans and recommend which drugs represent the best value-for-money for Canadians. This follows on the interim report of the government's advisory council on the implementation of national pharmacare, released in early March. That report highlighted the gaps in coverage and urged government to create a national agency to manage prescription drugs.

What it means: About 20% of Canadians reportedly have insufficient or no coverage for pharmaceuticals and must pay out of pocket. The budget proposal is the first step in a national pharmacare strategy, with the goal of closing that coverage gap and addressing the rising cost of prescription drugs.

Affordable housing

What the budget said: The federal government enhanced the current Home Buyers' Plan and introduced the First-Time Home Buyer Incentive, which will provide qualifying new home buyers access to an interest-free loan to reduce the amount of money required from an insured mortgage, without increasing their down payment.

What it means: Rising housing prices around the country have blocked the road to home ownership for many younger Canadians. Delays in purchasing a home could also generate wider societal harm, with some Canadians putting off starting a family.

In the weeks leading up to the budget, Finance Minister Morneau had signaled the government would introduce measures to help millennials access the housing market. Along similar lines, the Canada Mortgage and Housing Corporation revealed an ambitious goal: affordable housing for all Canadians by 2030.

The budget measures could increase housing starts and help Canada's real estate industry. That being said, these proposals address only the demand side of the housing equation. Supply challenges will require further action. The budget did contain proposals to make long-term investments and collaborate with key partners to boost housing supply, focused on lower income and middle-class Canadians.

Canadian competitiveness

What the budget said: The federal government proposed no new policies specifically geared to helping Canadian companies compete on the world stage. However, its Fall Economic Statement did introduce new accelerated write-offs for capital investments in Canadian businesses, particularly for manufacturers and processors.

What it means: For much of 2018 and 2019, Canadian business owners and leaders considered their response — and in many cases took action — on U.S. tax reform. This set of landmark changes, which mostly came into effect in early 2018, generally helped U.S. businesses by lowering the federal corporate income tax rate and introducing immediate write-offs on capital spending.

Tax reform lowered barriers for Canadian companies expanding to the U.S. But it added a competitive disadvantage for Canadian business owners operating north of the border. Many in the business community had hoped the federal budget would introduce a made-in-Canada version of tax reform to help Canadian businesses compete.

Additional tax measures

  • Stock Options – The budget proposed to limit the benefit of the employee stock option deduction for high-income individuals employed at large, long-established, mature businesses.
  • Scientific Research and Experimental Development (SR&ED) Tax Credit – The budget proposed to eliminate the use of taxable income as a factor in determining access to the enhanced refundable tax credit for eligible SR&ED expenditures. This is designed to make it easier for small businesses to qualify for the enhanced credit.

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