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moneysense.ca, 27/01/09
Notes from Budget 2009
Finance Minister Jim Flaherty tabled his fourth budget in Parliament today wearing steel toed boots in keeping with the theme of massive spending on infrastructure. There is plenty of print, broadcast and online coverage of the budget in the mainstream press, but if you are so inclined, you can read the entire 343-page document here. If you are only interested in the bits that directly affect your pocketbook, feel free to skip to the pages indicated below:
- Five Extra Weeks of EI Benefits: EI recipients will now receive five extra weeks of benefits for the next two years. (Page 95)
- Personal Income Tax Measures: Increase in basic personal amount to $10,320 and increase in the first two income tax brackets (the 15% bracket is increased to $40,726 and the 22% bracket to $81,452). These measures are retroactive to January 1, 2009. (Page 106) [Note: Check out Jon Chevreau's column to figure out how much these measures will actually save in tax.]
- Home Renovation Tax Credit (HRTC): A temporary 15% tax credit on eligible home renovation expenditures done on a home, cottage or condo, after January 27, 2009 and before February 1, 2010. The tax credit can be claimed on the portion of eligible expenditures exceeding $1,000 but not more than $10,000 (i.e. a maximum tax credit of $1,350). Eligible expenses include renovating a kitchen, bathroom or basement, new carpet or hardwood floors, building a new deck, installing a new furnace or a water heater, painting the interior or exterior of a house, resurfacing the driveway, laying new sod, replacing windows etc. Routine repairs and maintenance does not qualify for the credit. Note to readers: Don’t throw away all those Home Depot or Rona receipts this year! (Page 123)
- Withdrawal Limit under the Home Buyers’ Plan Increased: After January 27, 2009, first-time home buyers can withdraw up to $25,000 from their RRSP under the Home Buyers’ Plan. (Page 127)
- First-Time Home Buyers’ Tax Credit: A $5,000 non-refundable tax credit for individuals acquiring a qualified home after January 27, 2009. The credit will result in a saving of $750 in taxes. (Page 128)
Other Coverage:
The Globe and Mail
National Post
moneysense.ca, 27/01/09
I can just imagine a bunch of laid off high tech and auto workers building sub standard patio decks and doing lousy home renos (Mike Holmes will have some tons of work).
It would have been nice to see the GST back up to 8% to help fund some of this now and in the future. Sadly the tax cuts were not needed. I know for myself, I would have gladly given up ~ $300 to someone who is in real need of help. Sad the gov. did not agree.
Oh boy, that’s horrible news! I missed the 22% tax bracket by a couple hundred dollars. Hmm, it seems like very little of this budget will mean very much for me. According to the article, I guess I’ll be getting a tax break of just under $300 bucks. Ooo… Can I retire yet?
Yesterday I figured the tax cuts will be mostly symbolic, just enough to say to the media that the government is doing “something”… But yet in reality, they’re just making a token effort. Today, I seem to be correct in my previous assessment. Let the political advertisements begin touting the amazing economic rescue policy.
Thanks for the heads up CC on the two new home buyers adjustments!
I’m hopefully buying mine at the end of August so I’ll be applying now for the Ontario credit, Federal Credit & HBP adjustment!
I don’t media surf on this, I just look for the bullet points so I don’t know if this has been mentioned anywhere.
Just so it’s noted to the “average” worker that the maximum insurable earnings for E.I. ($42,300 up $1000) and the YMPE for CPP ($46,300 up $1400) have both been indexed up which eats most of this up.
(I know, the argument these aren’t “taxes” but insurance premiums that are for benefits you may need 1 day, but they reduce your take home)
EI is 1.73% which equals an additional $17.30 if you earn over $42,300, and CPP is 4.95% which translated into $69.30 if you earn over $46,300.
Don’t quote me as math + up late don’t often go together.
Well $300 is still $300. I’ll take what I can get back from the government. I wonder how families who have been hit by this recession will react?
I don’t suppose that contractors will be increasing their estimates by, say 15%, in response to the HRTC.
I find it ironic that by cutting taxes now, the deficit is made worse, which will result in higher taxes in the future.
Jon: You are right that we pay higher amounts into EI and CPP this year. The 15% bracket has an inflation boost as well. The 2008 level was $37,885 and in 2009 it is $38,832 (before the budget measures), which results in a saving of $66.29. So, it is basically a wash between the indexing of the brackets and the boost in EI and CPP.
Al: That is a valid point. If this results in a lot of demand, the contractors are going to ask for more.
Canada will run a big deficit in 2009, and beyond. About half of the deficit is a result of decreased government revenues, and the other half new stimulus spending. In my view, that stimulus spending should be directed at those most in the line of fire through job loss, or creation of new jobs, etc. How do the measures outlined above stack up:
Additional weeks of EI benefits will be a help to those that lose jobs, so full marks.
Raised basic personal amount, and raised marginal tax brackets up to $81,000 – I think raising the personal amount only might have been sufficient on the tax front, helping the lowest income earners in particular. The tax cuts for the middle class are hard to turn down, but the goal of the stimulus package is to make money flow – how many of the middle-class will run out and spend the tax windfall? Fear is in the air, and the extra money will get stuffed under the mattress.
Home renovation tax credit – this will increase consumption of raw materials immediately, and put laidoff tradespeople back to work immediately as well. A difficult program to manage and audit, but the concept is well directed.
And the last 2 measures aimed at getting young people to take the leap into home ownership: mixed feelings on this. On the one hand, this will help to stabilize sliding house prices, and erosion of boomer wealth. On the other hand, I think the property value slide is still in its infancy, and a lot of the young people that take advantage of the new incentives will still find themselves in negative equity situations. Bit like throwing lamb before the lions.
Overall, my underlying sentiment is that the actions we take today as a society to maintain the standard of living we think fair for ourselves saddles the generations of tomorrow with debt they did not ask for, nor deserve. We are subsidizing our lifestyle on the backs of our grandchildren. Easy to take our tax cuts today, when the people who feel the impact tomorrow have no voice.
I have a love/hate relationship with the renovation credit. I’l half way through developing my basement so the remainder will cost 15% less. Of course now I’ll be tempted to do all the nice-to-have projects in the next 53 weeks. (My wife’s wanted a pergola over the deck for years.) My cordless imact driver is going to become fused to my hand.
Smart plan though since most building materials are Cdn made and all the labourers should be paying taxes.
Isn’t 15% on a maximum of $10,000 = $1,500. Where does $1,350 come from. Am I missing something?
Jeff: The tax credit is on spending over $1,000 and the maximum eligible is $10,000. So, if I spend $10,000, the first $1,000 does not get the credit but the other $9,000 does. 15% of $9,000 = $1,350. I was confused by this initially as well.
Can someone explain to me the conservative’s resistance to unemployment insurance (EI)? The Republicans are the same way in the States and it makes no sense.
EI is has some very strong economic arguments in its favor: The money is usually pumped directly into the economy, it is never saved. It allows a worker the time and flexibility to return to one’s preferred profession instead of being forced to take a lesser paying job. That increases productivity. And it directly helps the people most in need and avoid worse issues like foreclosures or bill delinquencies.
It is not a permanent handout, it is not putting people on the dole. Only a small fraction of people will stay on EI rather than find a job paying more, so that’s a red herring. EI is simply an effective way to smooth out the gyrations of the labor market.
But conservatives for some reason hate the idea of extending EI benefits during recessions. I simply cannot understand why that is.
I second Trent’s motion.
My wife will give birth in July – she is a teacher that will go on maternity leave for the full year – will the extra 5 weeks of EI lessen the amount (top-up) that the employer (Board) will pay her?
Congratulations Loki! I don’t think parental leave provisions of the EI program have been tinkered with. The changes only apply to those who apply for EI after losing their job. So, there should be no effect on your wife’s benefits.
Trent – EI also works to subsidize certain industries, particularly seasonal ones such as Fishing, Tourism, etc. People can work enough to get their hours and then spend the off-season doing nothing. In that case it doesn’t amount to insurance against unemployment.
Secondly, the way eligibility and benefit rules have been set up, the program is more generous to people in economically depressed areas, which means people have a disincentive to move to areas that are more economically robust.
The program has pluses and minuses. Most people emphasize one side or the other.
There are very easy ways of handling that situation. You can mandate that extended benefits only go to those people who have paid into EI but not drawn on it for X years. Simple.
But you’ll never hear a suggestion like that from conservatives.
Trent: Why do you think the Conservatives don’t like EI? It is true that when they were in opposition, they were criticizing the Liberals for running huge surpluses in EI premiums, which were added to general revenue. But guess what? The Cons do the same thing and now the Liberals criticize them for it!
The fact is EI has been raided to dole out pork by both parties. The Liberals did it in areas with seasonal employment, as Al points out. The Cons are no better. They want to allow the self-employed to opt to pay into EI and be eligible for parental benefits. Guess who is going to opt in? The self-employed who are planning on getting pregnant would opt into EI, collect benefits when the baby is born and then opt out! I don’t blame them; that’s what I would do as well. The point is EI has been raided to pay out special groups that vote a certain way by both parties. I don’t see how the Cons are any different than Liberals when it comes to it.
I would hope not – it would be bad policy. What happens to people who legitimately seek out long-term employment but, through no fault of their own, are laid off more than once within your X years? Your fix would make anyone who has previously drawn on EI benefits within that period ineligible for future benefits. It would harm the very people it is designed to help.
There are armies of policy analysts who examine these issues every day. It’s not like there are many obvious, inexpensive enhancements that can be made to the program, or else they would have been made already. As I said earlier, there are pluses and minuses to EI. The reality that many people think it’s too generous, and many people think it’s too stingy is a good indication that it’s decently balanced.
I wouldn’t pin this solely on the Conservatives, by the way. The program has been status quo for a long while, which includes both Liberal and Conservative governments.
Loki – as CC notes, you’re probably in the clear, but the wording in your wife’s collective agreement would provide greater clarity. Most top ups are either a set dollar amount or a top up to a certain percentage (i.e. 90%). If it is the latter, then the generosity of EI wouldn’t decrease the net amount you would be paid.
I hope your wife’s collective agreement is better than my wife’s… She is also a teacher, and doesn’t get top up for periods that she would not normally be working. In our case, we lost out on benefits during the holiday break. Having a July baby would have lost us a lot of money!
Best of luck!
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