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Ottawa must support economic growth and restore Canadians’ confidence in the country’s fiscal management by charting a path to balance, says the C.D. Howe Institute’s annual Federal Shadow Budget.

In “Supporting Growth, Restoring Confidence: A Shadow Federal Budget for 2020,” authors William B.P. Robson and Alexandre Laurin show Ottawa could put federal finances back in the black by 2025 through a combination of measures to boost growth and opportunities, while holding the line on costs and rationalizing ineffective tax expenditures. With COVID-19 and disruptions such as blockades threatening Canada’s economy, the authors say, a budget oriented toward growth and long-term sustainability will be particularly timely. To reflect the potential impact of COVID-19, the Shadow Budget marked down slightly (by 30 basis points) the forecast for real GDP growth in 2020, with rebounds making up much of the lost ground by the end of 2021.

Among the key budget recommendations for Finance Minister Morneau:

Addressing the productivity and growth challenge

  • Lower the corporate income tax rate from 15 percent to 13 percent to provide further incentives for investments and profits in Canada. 
  • Double the top personal income tax threshold to boost the tax base for both federal and provincial governments.
  • Transition to a neutral corporate tax system over time to support capital investment and the economy.  

Improving Canadians’ opportunities and well-being

  • Reduce CO2 emissions without hurting competitiveness by raising the GST rate on transportation fuels and eliminating the aviation fuel tax.
  • More generous and flexible tax treatment of savings in RRSPs and TFSAs, and of drawdowns in annuities and RRIFs.
  • Tax relief for health-related costs through a lower threshold for the medical expense tax credit.

Achieving fiscal sustainability

  • Improve the estimates process to allow parliamentarians to reconcile spending votes with budget projections.
  • Rationalize or eliminate tax expenditures such as the age credit, the tax credit for first-time homebuyers and the credit for labour-sponsored venture capital.
  • Level the playing field in the digital economy by requiring all suppliers of digital services to Canadians to pay GST/HST.

“This fiscal framework will support growth now and in the future,” says Robson. “It will let Canadians work, save and invest with confidence, knowing that the federal government is dealing successfully with the country's longer-term challenges."

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For more information contact: William B.P. Robson, President and CEO; Alexandre Laurin, Director of Research; or Nancy Schlömer, Communications Officer, C.D. Howe Institute, phone 416-865-1904 ext. 0247, email: nschlomer@cdhowe.org.

The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada's most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.