Nenshi welcomes federal budget pledge to share pot tax revenue
No push to productivity shows Liberals are counting on U.S. to lift Canadian economy
Mayor Naheed Nenshi likes what he saw in Tuesday’s federal budget about tax revenues from cannabis sales going to cities — and hopes the provincial government was listening.
“We did hear from the minister of finance that the intent of the tax split on cannabis is really that those revenues are supposed to flow to municipalities and local communities,” Nenshi said. “We just want to highlight that for the province of Alberta — that we’re expecting that we will be able to more than cover the costs of the enforcement, which largely come to the City of Calgary, (and) I was happy to hear Minister (Bill) Morneau suggest that.”
The federal government previously committed to a 75-25 split on tax revenues from cannabis sales, with the bulk of the cash going to the provinces. In budget documents tabled Tuesday, Ottawa said that “a substantial portion” of cannabis tax revenues should go to municipalities “who are on the front lines of legalization.”
Cannabis wasn’t the only drug discussed in the 2018 budget, which was heavy on commitments to gender equity, Indigenous affairs, and science and innovation.
Provinces and territories will receive $150 million in emergency funding to deal with an opioid crisis that is projected to kill more than 4,000 Canadians this year.
“I was really happy to hear him say the word ‘treatment,’ ” Nenshi said Tuesday. “Because what
we know about people who have addictions is the moment you feel strong enough that you want to make a change, you have to have that treatment bed available for you; you can’t wait three days, three weeks, three months or three years.”
But the pledges fell short when it came to housing, Nenshi said.
“We know that maintenance and repairs of our affordable housing stock are absolutely critical, and it’s a shame that much of that money is still back-loaded,” the mayor said.
Housing initiatives in the 2018 budget tended to target First Nations and Inuit communities more than programs in larger cities.
But Calgary Homeless Foundation (CHF) spokesman Nick Falvo said an expansion of the Working Income Tax Benefit should annually put $500 into the pockets of those either facing or experiencing homelessness.
Tuesday’s federal budget offered a perfect Wayne Gretzky-type moment for the Liberal government.
Having passed over Alberta’s super-cluster submissions, it had the opportunity to announce measures to address orphan well concerns in Alberta. That would meet two government objectives: job creation and environmental responsibility.
Instead, the government missed the setup and failed to score.
While Tuesday’s budget included some interesting initiatives — parental leave, gender equality and funding for research and development at the top of the list, it was largely uninspiring.
It’s pretty clear the Liberals are counting on the United States to lift the Canadian economy given there was nothing to boost competitiveness or push productivity, as is happening south of the border.
“The U.S. is a productivity story, not a fiscal one,” said Jack Mintz, president’s fellow at the University of Calgary’s School of Public Policy.
“The combination of lower taxes and deregulation will drive the adoption of new technologies, which will boost productivity,” said Mintz, who recently co-authored a paper outlining Canada’s lack of tax competitiveness.
Tuesday’s budget did nothing to close that gap.
That’s bad news for Alberta, which needs to attract investment to an industry known to be capital intensive. As the Calgary Chamber of Commerce noted Tuesday, capital goes where it can get the best return, meaning it tends to avoid higher tax jurisdictions.
“If Canadian governments continue to ignore competitiveness, discourage investment and reduce regulatory certainty, other jurisdictions with more attractive policies will encourage talent and investment to shift away from Canada,” said Zoe Addington, the Chamber’s director of policy and government relations.
Failing to address the tax competitiveness disparity was another easy miss.
The government did score in the areas of gender equality, with measures aimed at increasing the number of women in the workforce, however.
According to studies completed by the World Economic Forum (WEF), there is strong economic evidence supporting the theory that higher female labour force participation correlates directly with higher per capita GDP and competitiveness.
Canada, according to 2015 numbers, ranked 30th of 145 countries in a WEF study when it came to gender equality — having fallen from 19 the previous year.
Clearly, other countries are catching up to Canada. Changes introduced Tuesday, including more support for female entrepreneurs, mandatory parental leave for fathers should improve the rankings, with one caveat. That would be the importance of affordable child care for working women.
The high cost of daycare is a key deterrent that keeps women from remaining in the workforce. Just look at labour force participation rates in countries where it’s not an issue.
As for parental leave, the maximum allowable eight weeks for a second parent is a drop in the bucket compared to what women forfeit when they take extended time from their careers to stay at home. Many women in the oilpatch can tell that story.
One area that likely elicited a big sigh of relief was small business taxation.
“I think it is a world better than what was originally proposed,” said Eric Wipf, a tax partner with BDO in Calgary.
“What they are saying under the new rules, is that you can save in your company and if it is a modest amount, you are not going to be affected at all. They are not going after people who are trying to save money for a rainy day, which is great.”
The changes, in Wipf ’s view, mean individuals with small businesses that need to save for retirement and reinvest in their operations can do so without penalty.
“You are not getting taxed on what you have saved, to date, and you can retain the small business tax rate until you reach a threshold where $150,000 is generated by the passive investments,” he explained.
For illustrative purposes, to generate $150,000 at a five per cent rate of return would require a $3-million portfolio. The new rules also allow capital gains arising from active investments that are sold — as occurs when an angel investor sells an interest in a startup — will not be counted as part of the $150,000 threshold.
What happens under the new rules, is that if the investment income is over the maximum amount, the company loses its small business tax rate on its business income.
As Wipf points out, a company may save that money and exceed that rate of return one year. If it uses the dollars saved to buy new equipment the next year, its tax rate will revert to the small rate the following year.
Perhaps the most forwardlooking element of the budget was the $3.8 billion allocated to research and development, with $500 million going to basic research by 2023.
“It is clearly a science and research budget from our perspective. They listened to the recommendations from the fundamental science review that was released last spring,” said University of Calgary president Elizabeth Cannon.
The bright spot from Cannon’s perspective is the $1.2 billion allocated to investigative research, which she says will build capacity for future translation of research into commercial opportunities.
“The underlying message is that there is strong support for early career researchers and that is really key if we want to bring people into the academy and set them up for success,” she said.
Getting access to those dollars is a competitive process, but Cannon pointed out that whenever research funding has been made available, the U of Ch as succeeded in getting its share. In fact, the U of C ranks sixth in Canada in terms of research funding.
“Our scholars can compete and can compete very well,” said Cannon, who was equally enthusiastic about the $275 million allocated to facilitate collaboration with international institutions. In a world where research success is increasingly tied to global collaboration, it’s an exciting development for all Canadian universities.
Tuesday’s budget is safe, if not visionary. It’s also progressive in some areas, for which the government deserves some credit.
If it were a hockey game, however, it’s unlikely to have been recorded in the win column, especially in Alberta.