Most of Ottawa's tax cuts will be offset by provincial hikes, BMO says

Written By doni icha on Senin, 30 Maret 2015 | 22.39

About three-quarters of the billions in federal tax cuts and increases in benefits promised to Canadians this year will be offset by provincial tax hikes and cutbacks, the Bank of Montreal says.

In a research note early Monday, BMO economist Robert Kavcic calculates that the provincial budgets unveiled in British Columbia, Saskatchewan, Alberta and Quebec have announced a collective $2 billion in new tax hikes on citizens, or cuts to services, to balance the books — part of a new age of austerity prompted by lower oil prices.

By Kavcic's reckoning, Ottawa has promised a combination of tax cuts and benefit hikes that add up to about $4.5 billion back to Canadians in its current fiscal year. 

"It looks like the provinces will take back about three-quarters of it," he said.

Finance Minister Joe Oliver has delayed releasing the federal government's budget to give it more time to gauge the impact of oil prices, but a few election-year tax cuts have already been telegraphed. While it's uncertain what Ottawa has in store, Kavcic says, "most of what Ottawa will be returning to one taxpayer's pocket, the provinces will take out of the other."

With debt-laden governments in Ontario and Atlantic Canada yet to telegraph their spending plans, it's a good bet the theme of austerity will continue, which means even more ways that top-level tax relief will be clawed back in one way or another.

The next one could come Tuesday, when New Brunswick introduces its budget.

Kavcic also criticized Alberta for its recent fiscal decisions, noting that a lack of long-term planning when resource revenues were high are to blame for the province's current woes.

Unlike some oil-rich parts of the world that wisely invested their oil wealth over time, Alberta will dip into its contingency account and nearly drain it over the next two years to offset the deficits it's now forecasting, and the province will tip into a net debt position, Kavcic says.

"Perhaps the key issue of recent years was policymakers acting as though $100-plus oil was here for good, and not banking more of the windfall for times like today," Kavcic noted.

He praised Quebec for taking a few prudent but badly needed steps to get its long-term fiscal health in order.

"To be clear, the gap in fiscal health between these two still massively favours Alberta, but the change in momentum is noteworthy," he said.


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