Key Takeaways from Canada’s 2018-19 Federal Budget –

The Trudeau government released its 2018-19 budget Tuesday in Ottawa, with a fiscal track largely in line with what Canadian Finance Minister Bill Morneau forecast in his last fiscal update in October. One major change is C$7.2 billion ($5.7 billion) less infrastructure spending through 2019, an amount that has been allocated to other departmental spending.

Deficits

The budget forecasts the deficit will narrow to C$18.1 billion in the fiscal year that begins April 1, from C$19.4 billion in the current year. That’s little changed from the October fiscal update, and there’s still no target date for a return to balance. On a cumulative basis, including risk buffers worth C$3 billion annually, deficits over the six years including 2017-18 are projected to total C$98 billion. That’s little changed from the October forecast.

Theme

A gender narrative is woven through much of the budget, which is titled “Equality Growth: A Strong Middle Class.’’ To promote equality and an increase in women labor force participation, new funding is included to encourage both parents to share in parental leave.

New Measures

The Canadian government has introduced a net C$20.3 billion in policy actions, net of new taxes, through 2022. Were it not for the new measures, Canada’s deficit would be C$15.4 billion in 2017-18 and as low as C$6.7 billion by 2022.

Borrowing

Canada will reduce bond issuance in 2018-19 by 17 percent from last year’s record to C$115 billion, due to fewer maturities and stronger-than-expected growth over the past year. The ratio of debt to gross domestic product will drop to 28.4 percent by 2022 from 30.4 percent in 2017-18.

Infrastructure

Lower-than-expected spending on infrastructure in the short-term is being reallocated toward departmental spending, particularly a more than C$4 billion charge for benefits for veterans in 2017-18. The government is claiming an equivalent amount of infrastructure money will be spent later in the fiscal horizon, financed by lower departmental spending down the line.

GDP Growth

The economy is forecast to average growth of 2 percent between 2017 and 2022, including a 3 percent expansion in 2017

Tax changes

The government has implemented a watered-down version of reforms for “tax planning.’’

On passive investment, the new system only gradually reduces access to the small business tax rate for corporations with significant passive investment. Measures will limit tax advantages that larger Canadian- controlled private corporations can obtain by accessing refundable taxes on dividends. The two changes combined, including new restrictions on so- called income sprinkling announced last year, will add C$925 million to government coffers annually by 2022. The Trudeau government is also promising new rules to prevent banks and other financial institutions “from gaining a tax advantage by creating artificial losses.’’ The move will create C$560 million annually by 2022. A tax increase on tobacco is worth C$1.5 billion over six years, and levies on cannabis are expected to generate C$690 million over six years after it is legalized this summer. Canada has also taken a C$2.1 billion hit over six years from lost tariffs due to the Trans-Pacific Partnership agreement.