Canadian consumers may well get a tax break or two from Ottawa this fall as federal coffers fast approach a point of posting a surplus of cash.
The relief would be well received by households toting record amounts of debt, experiencing lacklustre income growth and lower savings this year, experts say.
“Consumers could probably use a bit of help at this point,” Peter Buchanan, senior economist at CIBC said.
On Thursday, Prime Minister Stephen Harper revealed the federal government’s deficit in the year ended March 31, 2014, was $5.2-billion – an unexpectedly substantial reduction from the $16.6-billion projected in the budget.
Harper said the government expects a small shortfall in 2014-15 (see chart at bottom of post, courtesy BMO). And if current projections hold, Ottawa will have a $6.4 billion surplus at its disposal in fiscal 2015-16.
MORE: Harper said federal deficit improves sharply, return to surplus soon
‘The table has clearly been set to serve up [tax breaks]’ – BMO Capital Markets
Harper said in an address the government planned to move quickly “to implement promises that we made to Canadians during the last election.”
Those promises include tax breaks such as income splitting as well as raising the maximum annual contribution for tax free savings accounts. A reduction off the top on income taxes could also be in the works, experts said.
“It looks like something definitely on the income tax side,” Kavcic said.
Economy, consumer boost
The measures could be introduced within a matter of weeks, experts suggest, or in next spring’s federal budget. The Harper government is scheduled to deliver an update on federal finances around Halloween, and one or more of the tax breaks could be included.
Both the economy and consumers could use the boost. Economic expansion ground to a halt in July (the latest data available), as retail spending took a dive, suggesting consumers may be tapped out.
MORE: Retailers take hit as consumer spending unexpectedly drops
Still, the housing market as well purchases of big-ticket items — namely new vehicles — remain brisk, fueled by rock-bottom interest rates and generous financing terms.
“The signals on the consumer are bit mixed at this point,” CIBC’s Buchanan said. “There are certainly concerns there.”
WATCH: Harper says the federal deficit for the last fiscal year is well below forecast.
Here’s how the federal fiscal balance is expected to swing over the next few years.
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