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9 Tax Memo 1 (1956)

handle is hein.journals/taxmmo9 and id is 1 raw text is: TAX MEMO No.9 February, 1956 FEDERAL BUDGET OUTLOOK -1956 Some time in the next few weeks the Minister of Finance will present his annual Budget Speech to Parliament. In this Tax Memo we attempt to give some of the background of this important event. This will be neither a forecast nor a policy state- ment, but simply some programme notes to aid in understanding the actual performance. In the year now closing (fiscal year 1955- 56, ending March 31st, 1956), Mr. Harris took a long chance and won. In his Budget Speech last April 5th he made tax reduc- tions of $148 million in the face of a prospec- tive deficit but calculated that if gross national product reached $26 billion the flow of revenue and expenditure would be in close balance. The hoped for gross national product materialized in bountiful measure ($26% billion or thereabouts) and the deficit will probably be half the $160 million that was projected. Had revenues fully reflected corporation tax payments based on the 1956 level of profits there would have been a substantial surplus. Mr. Harris will need all the comfort he can derive from this happy experience in choosing among the thorny alternatives facing him in the next two years, however. Despite an increase in expected expendi- tures for the new fiscal year of over $100 million, revenue prospects indicate that there will be a surplus of perhaps $200 million. This would provide room for immediate tax reductions, but there are factors in the longer-term outlook which the Minister can hardly disregard. Already the following year (1957-58) holds promise of expenditure increases of perhaps $200 million for payments to the provinces for hospital insurance and under the proposed new tax arrangements. Revenues in this year will also lack a non-recurring accumu- lation of corporation income tax payments that will swell receipts in 1956-57. At a guess it would seem that 1957-58 expendi- tures will require all or most of the present taxes-but for the intervening year there will be a fairly good surplus. With the times so out of joint the Minister faces a nice dilemma this Spring. The following pages give further details of the above appraisal. Additional copies of this Memo may be obtained on request. CANADIAN TAX FOUNDATION CANADIAN T AX FOUNDATION

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