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26 Tax Memo 1 (1961)

handle is hein.journals/taxmmo26 and id is 1 raw text is: TAX No. 26 MEMO February, 1961 FEDERAL BUDGET OUTLOOK Ten months ago the Minister of Finance presented the Canadian people with his first balanced budget in four years. However, the downward drift in the economic indi- cators forced him to issue a revision last December and to announce that Canada faced its fourth consecutive deficit year. In this Tax Memo the Canadian Tax Founda- tion takes its customary pre-budget look at the coming fiscal year to determine what are the Minister's prospects for pushing the genie of recurring deficits back into the bottle. The Foundation must, of course, base its predictions on the assumption that tax rates will remain unchanged. It cannot second- guess the government on questions of policy. All it seeks to do in this venture into crystal- ball gazing is to assess how government revenues will be affected, given a specified rate of economic growth or retardation. With the federal government currently tak- ing about 17% of the gross national product, it is important for other governments and business to know what Ottawa's future demands will be on the national output. For the current fiscal year we see a slightly higher deficit than the Minister pre- dicted in his supplementary budget, as there appears to be a continuing deterioration in commodity tax receipts. We think final revenues will approach $5.7 billion and expenditures will be around $6 billion, leav- ing a deficit of more than $.3 billion. These figures are exclusive of Old Age Security revenues and expenditures which will be in balance close to $.6 billion. -- 1961 For the 1961-62 fiscal year the outlook is for an even larger deficit. Although we are assuming that the gross national product will grow in 1961 at about the same moderate rate as it did in 1960, we foresee a slight drop in total revenue owing to the fact that 1961-62 will be a trough year for corporation tax receipts, which tend to run in two or three year cycles. The decline of $171 million in corporation tax receipts is expected to more than offset gains of about $52 million from personal income tax and $49 million from the consumption taxes. As a result revenues are likely to come about half-way between $5.6 and $5.7 billion. On the expenditure side, the Main Estimates tabled in January indicate that proposed expenditures have already broken the $6 billion barrier and when the inevitable supplementary estimates are added, we can- not see how the Minister can avoid a deficit at least double the one predicted for this year. If the amount exceeds $610 million, it will set a record for peace-time. Indications are that the government's non-budgetary cash requirements may exceed its non-budgetary income next year, so that it will have to meet both its budget deficit and possibly another $100 million or so of non-budgetary needs by means of new borrowing or by reducing its cash balances. What effect this will have on the bond market depends on a number of factors, not the least being the extent to which the government uses long term issues. In the following pages a more detailed analysis is presented. Additional copies of the Memo may be obtained at a price of 15¢. CANADIAN TAX FOUNDATION

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