David Baskin 10/20/2015

Promises are made to be broken, and nowhere is this more evident than in the realm of political promises. If we assume, however, that our new Liberal government follows through on its major economic pledges, here is what we see as the major impacts on our clients:

• The top marginal rate on income tax for those earning more than $220,000 per year will rise sharply, likely to about 53% in Ontario (and more in Quebec). Experience all over the world has shown that rates in excess of 50% promote tax avoidance, tax deferral and outright tax evasion, and that the revenue ultimately raised is, as a consequence, always short of projections. For professionals and business owners, the use of corporations as tax deferral vehicles will become mandatory. For others we will see increased use of trusts, income splitting schemes and other imaginative devices. No doubt tax accountants and lawyers are happy this morning.

• The TFSA contribution limit will likely fall from $10,000 to $5,500 in 2016. We do not expect to see a retroactive claw-back of contributions made in 2015. We urge all clients who have not done so to top up their TFSAs as soon as possible, and certainly prior to year-end.

• The proposed Ontario Pension Plan may be dead, a consummation devoutly to be wished. Changes in the CPP promised by the Federal Liberals may increase employer payroll tax loads, but this is far better than the creation of an entire new scheme.

• New Federal spending on infrastructure and the resulting $10 billion budgetary deficit will have a limited impact on both the economy and the Canadian dollar. Canadian GDP is about $2.5 trillion, so the extra spending amounts to a boost of less than 1% in new economic activity. However, having fiscal policy aligned with monetary policy, both aiming for expansion and higher inflation, is a positive step and an improvement over the present situation in which the Federal government is, in effect, battling the Bank of Canada. We may see a stop to interest rate cuts, and could, in fact, see a slight increase in short term rates in 2016.

• Much better cooperation between the Federal and Provincial governments may lead to the completion of long-awaited resource projects such as pipelines and LING terminals, a boon to the embattled energy industry.

• More attention to climate change and restrictions on carbon emissions, on the other hand, will likely add production and compliance costs to energy producers, impacting profits.

The Conservative government was viewed as business-friendly and a promoter of western Canada’s resource base. However, its inability to get along with the provinces, its single-minded insistence on balanced budgets and its evident antagonism towards First Nations and the United States acted to impede growth in many areas. A new era starts today, and nobody can say what will follow. We hope for the best.