Canadian businesses are bracing for impact
Canada’s business sector is bracing for potential tax hikes as Finance Minister Chrystia Freeland and Prime Minister Justin Trudeau gear up to unveil their spring budget on April 16.
With plans to enhance housing supply and possibly boost spending in areas like industrial subsidies, defense, university research, and drug plans, there’s growing concern that new revenue measures might be on the horizon to balance these ambitions without expanding the deficit.
The government has previously pledged to maintain annual deficits around $40 billion through 2026, a target that’s under scrutiny by the country’s fiscal watchdog. Trudeau and Freeland are navigating a tricky political landscape, careful not to fuel inflationary pressures as they trail behind Pierre Poilievre’s Conservatives in polls, with public discontent over living costs looming large.
Speculation is rife that Freeland might consider increasing corporate taxes, possibly through a broad-based tax on the profits of large companies, drawing on tactics like the one-time tax on windfall profits of major banks and insurers implemented in 2022. Such a move could align with the preferences of the New Democratic Party, currently supporting Trudeau’s government in Parliament.
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Goldy Hyder, CEO of the Business Council of Canada, expressed concerns in The Hub, cautioning against targeting the nation’s most successful firms. He argues that taxing profits could deter business investment and hinder growth plans, marking a challenge for Canada’s economic landscape.
However, facing a choice between confronting business over taxes and allowing the deficit to swell, Trudeau and Freeland might opt for the former. Loose fiscal policies could complicate the Bank of Canada’s efforts in managing borrowing costs, with some economists pointing to government spending, especially during the pandemic, as a factor that necessitated tighter monetary policies.
On the flip side, significant spending cuts could further strain an already struggling economy.
“Now that rates have gone up this much, I don’t think it would be especially constructive to really slam the brakes on the fiscal side,” Bank of Montreal chief economist Doug Porter said.
In an effort to reallocate funds more efficiently, the government has identified $10.5 billion in travel and consulting expenses to be redirected towards housing, healthcare, and the clean economy. Despite this, the forecast for the upcoming fiscal year suggests a spending increase, raising questions about the government’s strategy for balancing its books without undermining essential services.
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