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30 Tax Memo 1 (1962)

handle is hein.journals/taxmmo30 and id is 1 raw text is: TAX MEMO No. 30 March, 1962 FEDERAL BUDGET OUTLOOK -1962 1962 could be the year in which the growth theory of fiscal policy is tested. The theory lay behind the 1961 budget of Finance Minister Fleming and was also the premise on which President Kennedy's latest budget was based. Briefly, the proposition is that once the economy is moving ahead, swelling revenues will absorb normal increases in expenditures and even wipe out deficits without an increase in taxes. Most observers are predicting a 6% to 8% in- crease in gross national product for Canada in 1962. Whether this level of growth will expand revenues sufficiently to cover spending increases and improve the deficit position in 1962-63 will be a key question in this year's budget. In undertaking its annual assessment of federal revenue prospects the Foundation as- sumes unchanged tax rates since it cannot pre- dict government policy decisions. Because the date of bringing down budgets varies from year to year, these annual forecasts are made to facili- tate an understanding of the possible fiscal weather ahead, as early as possible in the year. For the current fiscal year it now appears that the Minister of Finance's revenue expecta- tions of last June will be realized. The sharp rise in employment and personal income in re- cent months will likely boost personal income tax receipts about $15 million above the budget forecast, customs revenues are expected to be up about $33 million and these increases will offset shortfalls in other taxes. However, the deficit will probably be about $160 million more than the $650 million anticipated by the Minister last June owing to increases in spending such as the $42 million for western grain producers and the stepped-up defence and vocational train- ing programs. For the 1962-63 fiscal year, the economic upturn will produce a substantial increase in revenue but about $330 million of the increase will go to the provinces under the new tax col- lection arrangements. This will be partly offset by a reduction of $292 million in federal ex- penditures for tax rental payments. The net in- crease in federal revenue is expected to be almost $60 million and this combined with an antici- pated net decrease of approximately $50 million in expenditures will result in a deficit of about $700 million for 1962-63 - about $100 million less than in the current year. It could approach $900 million if the upper limit of our expendi- ture projection is reached. There will also be a shortage of about $60 million in the Old Age Security Fund as a result of the pension boost. The 1962-63 revenue will not fully reflect the 1962 growth as there is always a lag in payment of corporation income tax when profits are on the rise. But even if all of the estimated $100 million of 1962 corporation tax which will spill over into the next year were collected in 1962-63, it would not, of course, wipe out the deficit. Indications are that the government's non- budgetary cash needs may be higher than in the current fiscal year. A more detailed analysis follows. Additional copies of this Memo may be obtained at a price of 154. CANADIAN TAX FOUNDATION TAX FOUNDATION CANADIAN

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