Provinces will offset 75% of Ottawa's tax cuts: BMO

About three-quarters of the billions in federal tax cuts and increases in benefits promised to Canadians this year will be offset by provincial tax hikes and cutbacks, the Bank of Montreal says.

In a research note early Monday, BMO economist Robert Kavcic calculates that the provincial budgets unveiled in British Columbia, Saskatchewan, Alberta and Quebec have announced a collective $2 billion in tax hikes on citizens, or cuts to services, to balance the books — part of a new fiscal age prompted by lower oil prices.

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By Kavcic's reckoning, Ottawa has promised a combination of tax cuts and benefit hikes that add up to about $4.5 billion in its current fiscal year. 

"It looks like the provinces will take back about three-quarters of it," he said.

Finance Minister Joe Oliver has delayed releasing the federal government's budget to give it more time to gauge the effects of oil prices, but a few election-year tax cuts have already been telegraphed. While it's uncertain what Ottawa has in store, Kavcic says, "most of what Ottawa will be returning to one taxpayer’s pocket, the provinces will take out of the other."

"When you add it all up you're looking at least $3 billion," he told the CBC's Amanda Lang in an interview on Monday.

Debt-laden governments in Ontario and Atlantic Canada have yet to reveal their spending plans, but it's a good bet federal tax relief will be clawed back in one way or another — although the exact tax hit will depend on where you live.

Provincial breakdown

The next example could come Tuesday, when New Brunswick introduces its budget.

Kavcic also criticized Alberta for its recent fiscal decisions, noting that a lack of long-term planning when resource revenues were high are to blame for the province's current woes.

Unlike some oil-rich parts of the world that wisely invested their oil wealth over time, Alberta will dip into its contingency account and nearly drain it over the next two years to offset the deficits it's now forecasting, and the province will tip into a net debt position, Kavcic said.

"Perhaps the key issue of recent years was policymakers acting as though $100-plus oil was here for good, and not banking more of the windfall for times like today," Kavcic noted.

He praised Quebec for taking a few prudent but badly needed steps to get its long-term fiscal health in order.

"To be clear, the gap in fiscal health between these two still massively favours Alberta, but the change in momentum is noteworthy," he said.

He also singled out British Columbia for lowering the tax burden on its citizens in a time when other governments are desperate for more revenue. "They've already pushed through two or three years of restraint," Kavcic said. "Their books are balanced and they're giving some of that back to taxpayer."

The same can't be said of Ontario, however, where he expects some modest tax hikes to deal with a deficit that was played down in an election year but must now be dealt with. "Ontario has two credit ratings agencies breathing down their neck," he said.