Liberals extend tax credit review beyond 2017 federal budget, keeping an eye on Trump

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A federal tax-reform plan will not be concluded in time for Finance Minister Bill Morneau's 2017 budget as the Liberal government waits to see how promised tax changes in the United States will affect Canada.

During the 2015 election campaign, the Liberals pledged to raise $3-billion in new revenue by eliminating tax breaks that primarily benefit wealthy Canadians or are ineffective.

Mr. Morneau had intended the budget to reflect the final results of a review of all tax credits, but sources say the process will extend beyond that date. The budget, to be delivered on March 22, is likely to eliminate some tax credits and will also focus on skills training in response to rapid changes in the work force.

Read more: To paint a portrait of the Liberals' federal budget, Morneau will have to get crafty

"Our budget will be very much about trying to increase jobs in this country, to create opportunities for people today, for their children and for their grandchildren," Mr. Morneau said. "It will be about how we can help Canadians get the skills that they need in a dynamic and changing economy." Mr. Morneau has little room for new spending, so his budget is not expected to include a major change in direction. It will provide new detail on existing government plans for infrastructure spending, innovation and research in addition to the review of tax credits. Business groups had argued that the more complex aspects of the tax reforms would need more debate and consultation beyond the budget date.

Tax credits are worth more than $100-billion a year in forgone federal revenue. They cover everything from tax breaks for apprentice vehicle mechanics buying tools to deductions related to investments such as stock options or the sale of a primary residence.

Extending the tax review would allow the government time to see how U.S. President Donald Trump implements his pledges of major tax reform and factor that in to its own plans. Business groups say Canada could be at a disadvantage when it comes to retaining companies and highly skilled workers if the United States sharply reduces personal and business tax rates.

Sources say the budget's focus on skills will be part of a longer-term approach to the economy as the ratio of working-age Canadians to retirees shrinks. Measures to encourage specific groups – including aboriginals, low-income people and women with young children – to boost their participation in the work force will be a central theme.

"We'll be thinking about not only how we can grow the economy, but how we can ensure that Canadians are prepared for the exciting and good opportunities that will come out not only for this generation, but for the next generation as well," Mr. Morneau told reporters after announcing the budget date in the House of Commons.

Conservative finance critic Gérard Deltell said he hopes the government shelves the tax credit review in light of the changes in the United States.

"If the Trump administration tables some new direction to have less fees and less tax for business, well, we must address it because it's very serious," Mr. Deltell said. "America, as you know, is our most important partner, but also our most important competitor."

The Conservatives also want a more ambitious timeline for erasing the deficit. A finance department report recently said the budget will not be balanced until the 2050s.

NDP Leader Tom Mulcair said the Liberals should follow through on closing tax loopholes for the rich and deliver on their promises to Indigenous people.

Mr. Morneau's advisory council on economic growth – which worked directly with the Finance Minister and his team over the past year – called for an increased focus on skills training in a February report.

The Liberal government was elected on a central plank of running deficits to boost economic growth through infrastructure spending, but the Parliamentary Budget Officer and a Senate committee say the money has been slow to get out the door.

The 2017 budget is expected to provide more detailed breakdowns of the long-term spending plan for infrastructure. The numbers are not likely to change much from what Mr. Morneau outlined in his Nov. 1 fiscal update, which increased the total to $186.7-billion over 12 years.

While some new projects are expected to be highlighted in the budget as examples of what is to come, funding announcements on big projects will have to wait. Ottawa has not formally launched its second phase of funding for large projects, which means provinces have not submitted wish lists.

Mr. Morneau's Nov. 1 update added trade and transportation as well as rural and northern communities to the three categories – public transit, green infrastructure and social infrastructure – on which the Liberals have promised to focus.

One senior government official said the budget will have more to say on federal efforts to promote trade infrastructure.

John Gamble, president and CEO of the Association of Consulting Engineering Companies Canada, said his members are not seeing evidence of increased construction in spite of promises from the Liberals – and the Conservatives before them – to hike infrastructure spending.

"We're very excited and very supportive of the fact that we've seen three successive budgets, from two governments, and each one of them has legitimately claimed to be the largest infrastructure investment in Canadian history," he said. "However, in practical terms, we have just not seen the corresponding level of design activity so far. We know there are a lot of reasons. We're just trying to convey a sense of urgency."

With a report from Robert Fife