Business Leaders Welcome Improved Fiscal Outlook, Emphasize Need For Public Sector Spending Restraint

Canada’s federal deficit is declining faster than previously projected, driven in part by sustained economic growth, strong private-sector investment and higher-than-anticipated increases in corporate tax revenue, the Canadian Council of Chief Executives (CCCE) said today.

From a peak of $55.6 billion in 2009-10, the deficit is expected to fall to $40.5 billion in 2010-11 and $29.6 billion in 2011-12, according to Finance Minister Jim Flaherty’s 2011 federal budget.  At the current pace – and provided that the government resists the temptation to launch major new spending initiatives – Ottawa is on track to record a small surplus in 2015-16.

One reason for the more positive fiscal outlook is that federal government revenues from corporate income taxation are projected to increase by an annual average of 6.3 percent between 2010-11 and 2015-16.

“As the federal stimulus program winds down and the economy shifts from recession to growth, Canada’s private sector is doing its part to create jobs and invest in the future,” said The Honourable John Manley, the CCCE’s President and Chief Executive Officer.  

Indeed, the budget indicates that corporate income taxes now represent the single fastest growing source of government revenue.  Despite recent reductions in the statutory corporate tax rate, federal revenues from business taxation are expected to rise by 12 percent over the next year – more than double the increase in personal income tax revenues.

“Over the past decade, successive federal and provincial governments have introduced much-needed measures to strengthen Canada’s international competitiveness by reducing the corporate tax burden.  These reforms are now spurring a significant upswing in business investment in new, productivity-enhancing machinery and equipment.”

Mr. Manley welcomed Minister Flaherty’s forecast of a balanced budget by 2015-16 but noted that achieving the government’s medium-term fiscal targets will require serious and sustained efforts to restrain direct spending on government programs.  That will prove even more difficult if, as expected, all three opposition parties join forces to defeat the budget, triggering a federal election campaign.

According to the budget, federal transfer payments to individuals and other levels of government will increase by 19 percent between 2010-11 and 2015-16, well above the anticipated rate of inflation.  Meanwhile, direct program spending is projected to remain essentially flat over the same period – although the budget does not indicate how exactly that is to be achieved.   

“The 2011-12 Strategic and Operating Review announced in this budget will be of critical importance in reaching the government’s overall spending targets,” Mr. Manley said.  “Restraining program spending is a commendable goal, but in reality many of the toughest decisions have been put off to a future budget.”  

Founded in 1976, the CCCE is the senior voice of Canada’s business leaders, representing 150 chief executives and leading entrepreneurs from all major sectors and regions of the country.  The companies they lead collectively administer $4.5 trillion in assets, have annual revenues of more than $850 billion, and are responsible for most of Canada’s private-sector exports, investment and training.