Budget 2009: Message to families: Get off your wallet

Given the precarious position of his government, it comes as no surprise that Finance Minister Jim Flaherty focused his tax cuts on the broadest swath of the electorate: middle- and lower-income earners.

But much less attention was paid to another key constituency that is traditionally a favourite of the Conservative Party: the family. What little there is aimed at families may have little impact on your client base, as it is focused on lower-income earners.

“Since first coming into office, our government has provided substantial tax relief to Canadian families,” Flaherty told the Commons in his budget speech. “It has provided, and is continuing to provide, both short- and long-term stimulus to our economy.”

But the numbers in the budget do not quite support the claim, at least on the family side. True, the basic personal amount will be increased to $10,320 in 2009, up from $9,600 in 2008, but it was already scheduled to increase to $10,100.

The 2009 budget also raised the upper limit of the lowest two tax brackets to $40,726 and $81,452. Both the increase in the basic personal amount and the wider tax brackets are effective January 1, 2009.

Notably absent from the budget were any sweeping family-friendly initiatives as we have been seen in the past, as with the Child Fitness Tax Credit. There were no enhancements to the RESP, nor to the Registered Disability Savings Plan. Where past budgets have encouraged saving and investing, this one is aimed squarely at stimulating spending.

“Last year, the budget was all about the TFSA, trying to encourage people to save, which, from a financial planning perspective, is what you want,” says John De Goey, CFP, vice-president of Burgeonvest Securities in Toronto. “This is the antithesis of that. This is about what [the government] can possibly do to get people off their wallet and start spending whatever money they have.”

The budget has increased the amount Canadians can earn before seeing any reduction in the National Child Benefit supplement and the Canada Child Tax Benefit.

Low-income families will be able to earn an additional $1,894 and still receive the maximum National Child Benefit Supplement.

“The majority of the budget was concentrated on spending, as opposed to tax reductions,” says Myron Knodel, director of tax and estate planning at Investors Group.

“When it comes to the basic Canada Child Tax Benefit that middle-income people are eligible for, [the government] will increase the amount of family income that can be earned before they will begin reducing your eligibility. They’ve increased it to $40,726.”

Flaherty pegs the economic benefit of these reductions at $500 a year for a single parent with two children, earning $35,000. A double income household earning $70,000, also with two children, can add $275 per year to their budget.

On the upside, for the economy at least, these two hypothetical households are virtually guaranteed to spend the entire gain, which the Finance Minister acknowledged in his speech.

There is some assistance for middle-class families who need to add a nursery, with the introduction of a 15% tax credit on home renovations. This non-refundable credit applies to any amount spent on the primary residence, between $1,000 and $10,000. The maximum credit is $1,350.

“I get the sense that the budget is doing more to deal with the middle class, which is uncomfortable, but not really hurting, and not doing much to provide to the people who genuinely need it,” says DeGoey.

(01/27/09)

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