Federal budget leaves mid-market firms’ concerns mostly unanswered

22 March 2019 Consulting.ca

Middle-market-focused accounting and consulting firm RSM Canada was left underwhelmed by the federal budget, which lacked measures to reduce tax and regulatory complexity.

The federal government doubled down on spending in this year’s budget, with Finance Minister Bill Morneau unrepentant about a broken promise from the last election campaign to balance the books by 2019. “We’re making investments in Canadians’ future. We’re doing it in a fiscally responsible way,” he said. The deficit is slated to grow to $16.8 billion in the next fiscal year.

The generous election year budget focused on making investments to help middle-class Canadians – including spending to support millennial homebuyers, skills training for workers, and financial support for seniors. Fiscal conservatives and critics of the Liberal Party view this sort of chicken-in-every-pot spending as fiscally irresponsible – a move that mortgages the country’s future to buy votes in an upcoming election. Liberals will counter that they are investing in the country's future.

The budget outlined $22.8 billion in new spending over the next six years. On the home-buying front, first-time buyers will be able to finance part of the purchase through a shared equity mortgage with Canada Mortgage and Housing Corp, lowering monthly payments. The amount that people can withdraw from their Registered Retirement Savings Plan for a home purchase has also been raised to $35,000, from the previous limit of $25,000.

Federal budget leaves mid-market firms' concerns mostly unanswered

Workers from the ages of 25-64 can now tap into a $250-per-year tax credit for skills training costs, up to a lifetime value of $5,000. The budget also plans to create 84,000 new student work placements over the next five years, while cutting interest rates on student loans.

For seniors, the budget promises to reduce clawback on the guaranteed income supplement for seniors who are still working. It also tags $2 billion for local infrastructure spending, $1.4 billion for social services for indigenous children, and up to $6 billion to bring high-speed internet to all Canadian homes and businesses by 2030.

Embattled industries were also singled out for support, with up to $3.9 billion pledged to dairy, poultry, and egg farmers now competing with international suppliers, as well as $251 million for the forestry industry, and $100 million for oil and gas.

You can’t always get what you want

In a release preceding the budget, accounting and consulting firm RSM Canada was hoping for the introduction of a number of business-friendly measures to help Canadian mid-market businesses better compete on an evolving international stage. The consultancy principally wanted a simpler regulatory and tax framework and a commitment to fiscal responsibility. It doesn’t seem like those hopes were realized in this year’s federal budget.

"Canadian middle-market companies were hoping that Budget 2019 would have meaningful measures to support growth and global competitiveness," Maria Severino, national tax leader at RSM Canada, said. "Although finance included some positive, targeted tax measures to support Canadian businesses, it deferred introducing any broad-based changes that could enhance competitiveness and reduce uncertainty."

As mentioned, the budget was silent on introducing broad-based tax measures that would relieve global economic pressure arising from factors such as the US’ tax reforms and the USMCA. The 2019 budget also didn’t introduce measures to lower personal and corporate tax rates, nor did it announce measures to reduce tax code complexity.

RSM did note some positives in the budget announcement. The consultancy was in favour of the new Canada Tax Credit, noting that it would “help strengthen workforce skills and provide a deeper pool of talent to Canadian companies.” RSM also lauded the elimination of an income test on companies performing scientific research and experimental development (SRED), which had previosuly restricted access to the 35% refundable tax credit. “The changes to the SRED program will allow more middle market businesses to access tax credits for innovation activities,” a release from the firm stated.

Other measures the consulting firm highlighted in the budget were the government’s increased funding and enforcement action toward tax noncompliance for the digital economy, cryptocurrency, non-residents, and high-net-worth individuals, as well as an intention to place a $200,000 annual cap on employee stock option grants (with the exception of start-ups).