2005 Federal Budget & the Trade Community

Prime Minister Paul Martin's Liberal government has delivered a carefully crafted budget just conservative enough to guarantee the survival of its minority rule. Thanks to unexpectedly large spending on the military and some modest tax cuts, the opposition Conservatives declared their intent to support the budget within minutes after it was released yesterday. More detailed information on the Federal Budget can be found here. Issues of interest to the Canadian trade community include: Border Security: Canada will take further steps to secure the Canada-U.S. border without impeding the legitimate flow of goods and people. Budget 2005 provides $433 million over five years to further strengthen the capacity of the Government to deliver secure and efficient border services. Service Canada: Providing One-stop Access to Canadians Too often, operational or organizational requirements have dictated the way government delivers services to Canadians. As a result, citizens find it difficult to navigate the maze of programs and departments to find the services they need. Citizens sometimes feel they are being bounced from department to department rather than being able to go to one place to have most of their needs met. Better coordination in the delivery of services will help reduce costs and provide more convenient service. Commentary from the Canadian Society of Customs Brokers: This commitment to a single-window approach to service provision for social programs will hopefully become the standard for other government departments, including CBSA. The CSCB has often stated the need for such a single-window approach to border management issues. Corporate Tax Rate: A pledge to reduce the general corporate tax rate from the current rate of 21 per cent to 20.5 per cent in 2008, 20 per cent in 2009 and 19 per cent by 2010.

Canada Dollar, Bonds Dive on New Investment Rules (Reuters) The Canadian dollar sank on Wednesday as the federal government presented a budget that scrapped the limit on foreign investments in registered individual retirement savings accounts. Short-term bonds extended losses after the Canadian budget measure was announced, while long-term issues turned negative, erasing the benefit of tame U.S. inflation data announced earlier in the day. The Canadian dollar finished at C$1.2376, or 80.80 U.S. cents, down from C$1.2249 to the U.S. dollar, or 81.64 U.S. cents, at Tuesday's close.But after the close, and after the announcement of Ottawa's 2005-06 budget, the currency fell to its lowest level in two weeks. At 5:40 p.m., it was at C$1.2497, or 80.02 U.S. cents. "I think (the loonie's fall is) because people believe that without this (foreign investment) restriction there's going to be a flood of purchases of foreign securities by Canadians," said Jeremy Friesen, senior currency strategist at RBC Capital Markets. Before the budget measure, the limit on foreign investments in Canada's Registered Retirement Savings Plans was 30 percent of the plan's value."Overall the budget was pretty good for the Canadian dollar. It was a stimulating budget, it showed good projections as far as growth, and it had less on the tax cut side and more on the spending side," Friesen said. The budget also said the appreciation of the Canadian dollar was challenging to Canadian companies that are highly exposed to international trade. It highlighted the risks to the economy from the large and persistent U.S. current account and budget deficits. "What (Finance Minister Ralph Goodale) is not saying is where is a comfortable level for the currency," said Jack Spitz, director of foreign exchange at National Bank of Canada. "He's leaving that unanswered. I think, to some degree, that's a negative on the currency."

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