Federal Budget Takes Important Measures to Encourage Lending and Business Investment

January 28, 2009

The 2009 federal budget relies on borrowed money to pay for a wide variety of spending and tax measures to provide short-term economic stimulus, but its most important provisions will not affect the budget balance, says the Canadian Council of Chief Executives (CCCE).

“The $200 billion Extraordinary Financing Framework announced in the budget will enable easier and cheaper access to loans for families and enterprises alike,” said CCCE Chief Executive and President Thomas d’Aquino.  “This will boost confidence, encourage consumption and stimulate business investment without adding a penny to the deficit.”

In a December 2008 statement, What Canada Needs Now to Respond to the Economic Crisis, the CCCE said keeping credit flowing to consumers and businesses should be the government’s top priority.  The financing framework announced in the budget enables the government to buy $12 billion in securities backed by assets such as car loans as well as another $50 billion in mortgages, adds capital to Export Development Corporation and the Business Development Bank of Canada, extends guarantees for wholesale term borrowing to include life insurers as well as banks and increases the ability of the Bank of Canada to provide additional liquidity in extraordinary circumstances.

The CCCE, which is composed of the chief executives and entrepreneurs heading 150 of Canada’s leading enterprises, said in its pre-budget statement that necessary fiscal stimulus would lead to a deficit in the short term and would have to be accompanied by a plan for returning budgets to surplus.

It recommended temporary measures to deliver fast results in five areas: accelerating public infrastructure projects; helping the unemployed in ways that would prepare them for better jobs as the economy recovers; enabling business investment and innovation; encouraging personal consumption through incentives and tax breaks; and supporting community services.

“The stimulus measures announced in the budget are consistent with the priorities that our Council has identified,” Mr. d’Aquino said.  “We also are encouraged by the government’s continuing determination to draw on the recommendations of last year’s Competition Policy Review Panel in shaping a more competitive and prosperous Canadian economy over the long haul.”

Mr. d’Aquino did express concern with the overall extent of additional spending, which will jump by 11 percent in the next fiscal year and add about $85 billion to the national debt by 2013.  However, he noted that the budget makes prudent assumptions about future economic growth, 1.5 percentage points lower than the private-sector consensus forecast for 2009, resulting in a $12 billion cushion over the next three years.

“This means that the actual deficits we face may turn out to be smaller than projected in the budget,” Mr. d’Aquino said.  “Nonetheless, the government’s plan to return to surplus by 2014 will require relentless discipline and continuing review of all federal programs to ensure that every tax dollar is well spent.”

The CCCE welcomed measures in the budget to encourage more business investment and innovation.  This includes the temporary 100 percent capital cost allowance (CCA) for new computers, the two-year extension of the 50 percent CCA rate on manufacturing and processing equipment and the elimination of $440 million worth of tariffs on imported machinery and equipment.

“We were particularly pleased to see that Finance Minister Jim Flaherty accepted the December 2008 recommendation of the Advisory Panel on Canada’s System of International Taxation to repeal provisions in the Income Tax Act that restrict the deductibility of interest on money borrowed for investment in foreign affiliates,” Mr. d’Aquino said.

The CCCE also applauded the Finance Minister’s intentions to move ahead this year with a Federal Securities Act and to establish an office to manage the transition to a Canadian Securities Regulator that will deliver an administrative plan within twelve months.

Founded in 1976, the CCCE is a not-for-profit, non-partisan organization committed to making Canada “the best place in the world in which to live, to work, to invest and to grow.”

In addition to Mr. d’Aquino, the members of the CCCE’s Executive Committee are:  Chair, Gordon M. Nixon, President and Chief Executive Officer, Royal Bank of Canada; Honorary Chair Richard L. George, President and Chief Executive Officer of Suncor Energy Inc.; and Vice Chairs Dominic D’Alessandro, Paul Desmarais, Jr., Jacques Lamarre, Hartley T. Richardson and Annette Verschuren, the chief executives respectively of Manulife Financial, Power Corporation of Canada, SNC-Lavalin Group Inc., James Richardson & Sons, Limited and The Home Depot Canada and Asia.