Finance Minister Paul Martin tabled the federal budget on December 10. As anticipated, the budget focuses primarily on security measures and secondarily on other measures designed to stimulate the economy.
From an HR manager’s perspective, there are very few immediate implications arising from the budget proposals. Here’s a brief summary of the HR-related budget proposals.
Personal taxation
The five-year tax reduction plan announced in the 2000 budget continues. The 2001 budget indicates that all personal income tax parameters and thresholds for 2002 will be increased by three per cent over the 2001 amounts. For example, this will raise the basic personal amount from $7,412 in 2001 to $7,634 in 2002.
As a result of these changes, the personal tax rates for 2002 will be:
•16 per cent of taxable income up to $31,677;
•22 per cent of taxable income between $31,677 and $63,354;
•26 per cent of taxable income between $63,354 and $103,000; and
•29 per cent of taxable income in excess of $103,000.
From an HR “macro” perspective, the policy of fully indexing personal income tax act parameters and thresholds announced in the 2000 budget helps ensure fairness of the tax system, the purpose being to avoid “bracket creep” as income levels rise with inflation.
From an HR “micro” perspective, these changes will result in adjustments to the withholding tax rates used by payroll systems, starting Jan. 1.
Stock option gains
In the 2000 federal budget, the government reduced the tax payable on gains on shares acquired through employee stock options, where the employee exercises the options to donate the shares to charity. This is intended to parallel the treatment for donations of certain publicly traded securities. This measure was scheduled to expire on Dec. 31, 2001. The 2001 budget proposes to make this measure permanent.
Employment Insurance
In her recent report, the Auditor General commented that the Canada Employment Insurance Commission, which is responsible for setting Employment Insurance (EI) rates, had not provided adequate justification for the current size and the recent growth rate of the balance in the EI Account in setting premium rates for 2001.
Although the 2001 budget makes no changes to EI rates, the government announced it will undertake a review of the EI premium rate setting process. This review may affect the way the government sets future EI rates. In the interim, the Cabinet will set the EI premium rates for 2002 and 2003.
With the cumulative surplus in the EI Account expected to have reached $40 billion by the end of 2001, many employers had hoped that there would be quicker relief from the current high level of EI rates. As the government’s review of the EI rate setting process gets underway, employers would be well advised to make their views known to the government.
Health care and research initiatives
In the areas of health care and research, the budget announces several initiatives:
•confirmation of previously announced increases of $23.4 billion in health-care funding;
•increased funding for health care through renewed funding of the Canadian Institute for Health Information (CIHI) and increased funding for the Canadian Institutes of Health Research (CIHR). CIHI provides key statistical and other information on the health of Canadians and the health-care system, while the CIHR engages in health research; and
•a one-time grant of $200 million to Canadian universities to help alleviate financial pressures associated with federally supported research activity at universities and research hospitals. Although the level of federal support for health care is below the level demanded by many provincial governments, it is at least encouraging that further cutbacks have not occurred in the interests of creating a balanced federal budget.
Training initiatives
To remove barriers to job training, the budget provides:
•a reduction of the waiting period provisions for skilled trades apprentices in the EI program. Rather than having to satisfy a two-week waiting period before receiving EI benefits each time they leave the workplace for classroom training, apprentices in approved training programs will now be subject to only one two-week waiting period; and
•an extension of access to the education tax credit for people who receive taxable assistance for post-secondary education under certain government programs, including EI. Tax relief is also provided for tuition assistance relating to basic adult education.
In view of the difficulties many employers face in recruiting for certain skilled trades, the budget’s training initiatives should be good news.
Missing from the picture
There was no announcement to address concerns about tax-assisted retirement savings.
Considering the current economic climate, it is perhaps not surprising that the budget did not announce any increases to the limits for tax-assisted retirement savings. The timing of future increases (for example, to RRSP contribution limits, and maximum benefit limits under defined benefit pension plans) remains unchanged. The government had postponed these increases several times during the 1990s. Now, despite the government’s continuing balanced budget, and despite growing concern among many taxpayers about their ability to set aside sufficient tax-assisted retirement savings, no acceleration of the long-deferred schedule of future increases has been announced.
With a growing proportion of the workforce affected by the current limits, many employers have either implemented or are considering implementing supplemental retirement arrangements. However, a better long-term solution is for government to bring the tax-assisted retirement savings limits into line with current needs of employers and employees.
C. Ian Genno is a consulting actuary in the Toronto office of Towers Perrin. This article was prepared with the assistance of colleagues in the Toronto office. Towers Perrin is a global management consulting firm which helps organizations execute business strategies through approaches to managing people, performance and risk.
From an HR manager’s perspective, there are very few immediate implications arising from the budget proposals. Here’s a brief summary of the HR-related budget proposals.
Personal taxation
The five-year tax reduction plan announced in the 2000 budget continues. The 2001 budget indicates that all personal income tax parameters and thresholds for 2002 will be increased by three per cent over the 2001 amounts. For example, this will raise the basic personal amount from $7,412 in 2001 to $7,634 in 2002.
As a result of these changes, the personal tax rates for 2002 will be:
•16 per cent of taxable income up to $31,677;
•22 per cent of taxable income between $31,677 and $63,354;
•26 per cent of taxable income between $63,354 and $103,000; and
•29 per cent of taxable income in excess of $103,000.
From an HR “macro” perspective, the policy of fully indexing personal income tax act parameters and thresholds announced in the 2000 budget helps ensure fairness of the tax system, the purpose being to avoid “bracket creep” as income levels rise with inflation.
From an HR “micro” perspective, these changes will result in adjustments to the withholding tax rates used by payroll systems, starting Jan. 1.
Stock option gains
In the 2000 federal budget, the government reduced the tax payable on gains on shares acquired through employee stock options, where the employee exercises the options to donate the shares to charity. This is intended to parallel the treatment for donations of certain publicly traded securities. This measure was scheduled to expire on Dec. 31, 2001. The 2001 budget proposes to make this measure permanent.
Employment Insurance
In her recent report, the Auditor General commented that the Canada Employment Insurance Commission, which is responsible for setting Employment Insurance (EI) rates, had not provided adequate justification for the current size and the recent growth rate of the balance in the EI Account in setting premium rates for 2001.
Although the 2001 budget makes no changes to EI rates, the government announced it will undertake a review of the EI premium rate setting process. This review may affect the way the government sets future EI rates. In the interim, the Cabinet will set the EI premium rates for 2002 and 2003.
With the cumulative surplus in the EI Account expected to have reached $40 billion by the end of 2001, many employers had hoped that there would be quicker relief from the current high level of EI rates. As the government’s review of the EI rate setting process gets underway, employers would be well advised to make their views known to the government.
Health care and research initiatives
In the areas of health care and research, the budget announces several initiatives:
•confirmation of previously announced increases of $23.4 billion in health-care funding;
•increased funding for health care through renewed funding of the Canadian Institute for Health Information (CIHI) and increased funding for the Canadian Institutes of Health Research (CIHR). CIHI provides key statistical and other information on the health of Canadians and the health-care system, while the CIHR engages in health research; and
•a one-time grant of $200 million to Canadian universities to help alleviate financial pressures associated with federally supported research activity at universities and research hospitals. Although the level of federal support for health care is below the level demanded by many provincial governments, it is at least encouraging that further cutbacks have not occurred in the interests of creating a balanced federal budget.
Training initiatives
To remove barriers to job training, the budget provides:
•a reduction of the waiting period provisions for skilled trades apprentices in the EI program. Rather than having to satisfy a two-week waiting period before receiving EI benefits each time they leave the workplace for classroom training, apprentices in approved training programs will now be subject to only one two-week waiting period; and
•an extension of access to the education tax credit for people who receive taxable assistance for post-secondary education under certain government programs, including EI. Tax relief is also provided for tuition assistance relating to basic adult education.
In view of the difficulties many employers face in recruiting for certain skilled trades, the budget’s training initiatives should be good news.
Missing from the picture
There was no announcement to address concerns about tax-assisted retirement savings.
Considering the current economic climate, it is perhaps not surprising that the budget did not announce any increases to the limits for tax-assisted retirement savings. The timing of future increases (for example, to RRSP contribution limits, and maximum benefit limits under defined benefit pension plans) remains unchanged. The government had postponed these increases several times during the 1990s. Now, despite the government’s continuing balanced budget, and despite growing concern among many taxpayers about their ability to set aside sufficient tax-assisted retirement savings, no acceleration of the long-deferred schedule of future increases has been announced.
With a growing proportion of the workforce affected by the current limits, many employers have either implemented or are considering implementing supplemental retirement arrangements. However, a better long-term solution is for government to bring the tax-assisted retirement savings limits into line with current needs of employers and employees.
C. Ian Genno is a consulting actuary in the Toronto office of Towers Perrin. This article was prepared with the assistance of colleagues in the Toronto office. Towers Perrin is a global management consulting firm which helps organizations execute business strategies through approaches to managing people, performance and risk.
