Federal budget is good, bad, and ugly

The federal budget in early March was a real mixed bag of new policies, projects, and planning. Some good, some bad, and some just plain ugly.

Richard Truscott

The federal budget in early March was a real mixed bag of new policies, projects, and planning. Some good, some bad, and some just plain ugly.

On one hand, it’s clearly a good thing the government affirmed that the previously announced federal tax cuts would continue. This means the federal small business tax rate will continue to drop, allowing business owners to keep more of their earnings.

The feds also announced a new “Red Tape Commission” to reduce excessive and unnecessary government red tape – a low cost way to make our economy more productive and make it easier for small businesses to succeed.

Unfortunately, the budget also revealed the ugly truth that the federal government will be bleeding red ink for many years to come. In fact, over the next five years this budget will add about $160 billion to the national debt.

Even more concerning, the country’s finances are now based on a wide variety of shaky economic assumptions about economic growth, inflation, and interest rates. There’s clearly not a lot of room for error. A double-dip recession in the U.S. or slower than expected growth could easily steer our own economy back into troubled water.

But perhaps the biggest example of bad public policy in the budget was the lack of meaningful reforms to the Employment Insurance (EI) program. Despite the government’s claim the budget contains no tax increases, there are going to be a series of significant jumps in EI premium starting in 2011. EI hikes are tax increases, plain and simple, and will have serious long-term ramifications.

For one, it will make it more expensive to hire workers during a time in which job creation appears to be one of the government’s key policy goals. In fact, the CFIB estimates the planned EI hikes may cost 200,000 jobs. The payroll tax hikes will also cut into the take-home pay of every working Canadian.

If the government was truly serious about boosting job creation, there is a better path out there: create an EI training tax credit similar to the New Hires program from the 1990s.

Under that program, if an employer hired new workers, the firm did not have to pay EI on the additional payroll. The application form was simple, the administration fairly straightforward, and all the tracking and accountability was done through the existing EI program. This EI premium holiday was both popular and effective and was supported by a large majority of small businesses across Canada.

By freezing EI premiums or implementing a new employment tax credit, the federal budget would have gone a long way towards both rebuilding confidence among private sector firms across Canada and boosting the economy. Instead, the 2010 federal budget will produce mixed results at best.

Richard Truscott is the Alberta Director of the Canadian Federation of Independent Business. He can be reached at richard.truscott@cfib.ca