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With budget, Ottawa signals the struggle of the middle class is for real

Globe and Mail columnists Rob Carrick.

Now we know what's wrong with your personal finances.

It's all there in one stunning line at the beginning of the federal budget book: "Over the past 30 years, the median wage income has barely risen." The budget offers help for parents, seniors and millennials, but its most notable feature is an acknowledgment that stories about middle class financial stress aren't so much whining. People's struggles are real.

Stagnant wages, rising household debt, income inequality and declining economic prospects for young Canadians are all woven into a budget narrative of a struggling middle class that needs help. The question is, how much support does the budget deliver?

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For parents, the news is good. The new Canada Child Benefit is a solid win over existing programs in both dollar terms and ease of use. The money is tax-free, so it won't have to be accounted for when completing your income tax return every year. Benefits start flowing in July.

The new child care benefit comes alongside two small reversals. The children's fitness tax credit, which paid up to $150 a child, and the arts tax credit, worth up to $75, are being halved for 2016 and then discontinued.

Low-income single seniors will benefit from an increase of up to $947 in Guaranteed Income Supplement top-up benefits starting in July. This represents a 10-per-cent increase in total maximum GIS benefits, which is to say it's significant. The budget also sets the future age of eligibility for Old Age Security benefits at age 65 – a gradual rise to 67 by 2029 has been cancelled.

The financial struggles of millennials are also recognized in the budget. College and university graduates won't have to start repaying a debt under the Canada Student Loans program until they are earning $25,000 a year. This measure provides needed relief in today's tough job market for young people.

For postsecondary students from low-income families, the government is increasing the Canada Student Grant to $3,000 from $2,000; for middle-income students, the grant rises to $1,200 from $800. These grants are available to students when applying to borrow money through the Canada Student Loans program.

Again, these improvements come with a take-away. On the way out are the education and textbook tax credits, which were available to students or parents who pay their children's tuition and educational costs. The education credit was worth 15 per cent of $400 per month when a student is enrolled, while the textbook credit was set at 15 per cent of $65 a month.

The government has already announced income tax changes that deliver more money to the middle class at the expense of high earners. The budget continues this theme in a couple of ways, the first being a measure to shut down corporate-class mutual funds.

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If you own this type of product, sometimes used by high-net-worth investors who have filled up their registered retirement savings plans and tax-free savings accounts, you can shift money between funds in the same corporate structure without paying tax on your capital gains. After September, 2016, this will no longer be possible.

Also gone is a measure proposed in last year's budget that would have allowed an exemption on capital gains taxes for people donating to charity the proceeds of the sale of a business or real estate.

One other notable budget measure for investors concerns labour-sponsored venture capital corporations, a once-popular investment vehicle that provided big tax savings and, in a lot of cases, poor investment returns. The federal tax credit for these vehicles is being restored to 15 per cent and will not be phased out.

Left out of the budget was any mention of an enhancement to the federal Home Buyers' Plan, which allows people to withdraw up to $25,000 from a registered retirement savings plan to buy a first home. The Liberals promised in the election to modernize the HBP by allowing it to be used by people facing job relocation, divorce or a death in the family. Sensibly, they've avoided doing anything to add fuel to an already hot housing market in some cities.

Also not mentioned in the budget was the government's election promise to limit the tax deduction on stock options, which are used as a compensation perk by some companies. Finance Minister Bill Morneau said Tuesday the government will not follow through on this measure, which was opposed by high-tech companies because of its importance in attracting top talent.

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About the Author
Personal Finance Columnist

Rob Carrick has been writing about personal finance, business and economics for close to 20 years. He joined The Globe and Mail in late 1996 as an investment reporter and has been personal finance columnist since November 1998. Rob's personal finance columns appear in The Globe on Tuesday and Thursday, and his Portfolio Strategy column for investors appears on Saturday. More

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