The 2005 Canadian federal budget was the budget of the Government of Canada for the 2005–2006 fiscal year. It was presented on February 23, 2005, by Finance Minister Ralph Goodale. It was the first Canadian federal budget presented by a minority government since the budget of the Joe Clark Progressive Conservative government in 1979, which was defeated by the opposition parties.
Having fewer than half the seats in the House of Commons of Canada meant that the governing Liberal Party of Canada had to win the support of members of other parties for the 2005 budget to pass. Without that support, the budget would have been defeated, and new elections would likely have been called.
In the 2005–06 fiscal year, the government had a large surplus of expected revenues over expenses, making the government able to fund a wide array of new initiatives. The budget bill (C-43) received Royal Assent on June 28, 2005. In order to gain the necessary support of the New Democratic Party (NDP) the budget was amended (Bill C-48) and given assent three weeks later following considerable debate.
Details of the budget
The budget was the eighth balanced budget in a row presented by the Liberal government. It contained minor tax cuts for both businesses and individuals over a five-year period. These cuts, however, were mostly scheduled to begin in the latter years of the five-year period, which meant that the majority of them were unlikely to occur before the next election was held.
Taxes
Personal income taxes
Increase of the basic personal exemption: The personal income tax cut raises the basic personal exemption to $10,000 from its former level of just over $8,000 over the five-year period. This was projected to result in an average tax savings of $16 for each Canadian in 2006, with the final total reaching $192 at the end of the five-year period. The basic personal exemption is indexed to inflation, so it would likely have risen to roughly $9,000 over the five-year period without the changes. Increase in RPP and RRSP limits : increase of limits by $1,000 each year between 2006 and 2009 for the RPP, of $1,500 in 2006 and $1,000 each year between 2007 and 2010 for the RRSP. Indexation on average wage growth to start in 2009 for RPPs and 2010 for RRSPs Creation of the Adoption Expense Tax Credit : creation of a 16% non-refundable tax credit for adoption expenses for adoption of child under 18. Eligible fees include notably fees paid to an adoption agency, legal and administrative fees, reasonable travel and living expenses. The maximum tax credit is set at $1,600 for 2005 to be indexed in taxation years after 2005 ; More expenses are made eligible to the Medical Expenses Tax Credit.
Corporate income taxes
The main change brought by the budget is a gradual reduction in the general corporate tax rate, to be lowered to 19% (from 21%) by 2010 in 3-steps: 20.5% starting on 1 January 2008 ; 20% on 1 January 2009 ; 19% on 1 January 2010. Selected investment incentives were also enhanced: Faster depreciation for highly-efficient or renewable energy generation equipment: selected clean energy generation equipment will be eligible to a special 50% CCA rate (instead of 30%) if it is purchased before 2012. Incentives for scientific research and experimental development (SR&ED) are made eligible for expenses incurred in Canada's Exclusive Economic Zone.
Expenditures
The budget also contained $12.7 billion for the Department of National Defence over the following five years. However, not all of this money was new funding and, as with most of the budget, it was back-loaded. The total new funding for 2006 was to be $500 million.
Start-up money was provided for Canada's efforts to comply with the Kyoto Accord and for a national child care program. Additional funding was provided for cities, health care, and foreign aid. Some cuts were made. The Air Travel Complaints Commissioner was abolished, and foreign aid to Thailand, Malaysia, and all countries now in the European Union was ended. In total, $11 billion in savings are expected.