Prime Minister Mark Carney and his Cabinet have overpromised and under-delivered.
Fortunately, the tyranny of past Liberal governments on entrepreneurs and small business owners seems to have ended in this most recent Federal Budget. This comes with the budget announcement that privately owned corporations will need to contend with the new dividend refund rules for straddle year-ends, ultimately suspending a dividend refund until a taxable dividend is paid to an individual shareholder. My Firm is going to have to take a look at these dividend refund suspension provisions more closely moving forward.
I welcome the move to increase funding for Scientific Research and Experimental Development. The scrapping of the ill-advised Under Used Housing Tax is also a good idea – the City of Toronto should do that too with their Vacant Home Tax. The postponement of the draconian bare trust rules by one year is also a welcome measure.
However, there were very few tax measures in this most recent budget. In Exhibit 1, I have summarized the Canada Strong Budget 2025. You will continue to note that the Federal government is committing to collect $237.9 billion of personal tax revenue in 2025-2026 or about 47% of Federal Government revenues. We have not had real Canadian tax reform in more than 50 years, and it is overdue despite not being on the radar of the Federal Government or of most Canadians.
The projected GST revenue of $54.4 billion for 2025-2026 will go straight to funding public debt charges of $55.6 billion, leaving us $1.2 billion short. Another way to view this is that the GST revenue is going straight to funding Canada Health Transfers of $54.7 billion and Health Agreements $4.3 billion, – also leaving us $4.6 billion short. However, you wish to frame the issue, we are falling behind and interest is growing quickly and only going to get worse. Know that every time you are paying HST it is not enough to pay the interest on our Federal debt or enough to support the Canadian Health Transfer. Somehow, the public debt charges are only projected to rise between 1.8% and 2.1%.
Elderly benefits are projected to be $83.1 billion in 2025-2026 and are forecast to grow by an annual average of 5.9% due to the increasing population of seniors and projected inflation, to which benefits are fully indexed. This is the old age security program reformed in 1951 to provide seniors aged 70 and older with $40 per month. In the early 1970s under Pierre Elliot Trudeau, the eligibility age for benefits was dropped to age 65. I assume that the average life expectancy of a Canadian in 2025 is significantly longer than it was in 1951 or 1970. This suggests that this expenditure knows no bounds and is not on the radar of the Federal Government or most Canadians. This liability continues to grow without a funding mechanism and now forms 15% of federal government expenditures. The Old Age Security program needs to be reformed.
Interestingly though, the Canada Health Transfer is $54.7 billion in 2025-2026 increasing to $65 billion in 2029-2030 under a 5% federal guarantee and then projected to grow in line with the three-year moving average of nominal GDP growth. Additional health funding to the provinces and territories is to remain at $4.3 billion in 2025-2026 and 2026-2027.
These two significant funding items by the Federal government for Elderly Benefits and Canada Health Transfers are growing at much different rates, and we know that seniors consume more health care resources as they age.
I am a proponent of small government. I do not get excited about forming new government bodies to oversee new federal spending initiatives like the Major Projects Office and Canada Build Homes.
Governments should exist to clear obstacles, build infrastructure, and collect the least amount of tax revenue. Canadians need tax reform. The Federal Government needs to better support the entrepreneurs and small business owners that pay the lion share of tax that keep the government running. We need to rethink Old Age Security and ensure our Health Care Transfers keep up not only with GDP growth but immigration and an aging population.
There are many measures that need to be addressed by Carney and his Government. This Federal Budget struggles to address the structural issues of our country. In summary, I would have preferred that this Federal Budget was not approved by parliament on Monday.
Exhibit 1: Federal Budget Highlights, Summarized from Table A1.8 from the 2025 Canada Strong Federal Budget
| Billions of Dollars | ||||
| 2025-2026 | 2026-2027 | |||
| Revenues | ||||
| Income tax | 348.7 | 355.6 | ||
| Personal | 237.9 | 244.9 | ||
| Corporate | 97.1 | 96.7 | ||
| Non-resident | 13.7 | 14 | ||
| Excise tax and duty | 77.5 | 78.8 | ||
| GST | 54.4 | 56.5 | ||
| Other | 23.1 | 22.3 | ||
| Employment insurance | 32.2 | 33.3 | ||
| Other | 49.1 | 55.5 | ||
| 507.5 | 523.2 | |||
| Expenses | ||||
| Major transfers to persons | 143.7 | 151.7 | ||
| Elderly Benefits | 83.1 | 88.8 | ||
| Employment insurance | 30.5 | 31.9 | ||
| Canada Child Benefit | 30.1 | 31 | ||
| Major transfers to provinces, territories and municipalities | 110.8 | 115 | ||
| Canada Health Transfer | 54.7 | 57.4 | ||
| Canada Social Transfer | 17.4 | 17.9 | ||
| Equalization | 26.2 | 27.2 | ||
| Health agreements with provinces and territories | 4.3 | 4,3 | ||
| Other | 8.2 | 8.2 | ||
| Pollution pricing proceeds returned | 5 | 0.2 | ||
| Other transfer payments | 115.6 | 117.3 | ||
| Other direct program expenses | 150.2 | 144 | ||
| 525.3 | 528.2 | |||
| Public debt charges | 55.6 | 60 | ||
| Net actuarial losses | 5 | 0.2 | ||
| 585.9 | 588.4 | |||
| Deficit | -78.4 | -65.2 | ||
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