Canadian Skyscrapers

2018 CANADIAN BUDGET PREVIEW: NAFTA Negotiations: Budget 2018’s Under the Radar Secret

The ongoing NAFTA negotiations will likely be given short shrift in the Feb. 27 budget as Finance Minister Bill Morneau will be loathe to risk derailing the precarious talks. But that doesn’t mean the talks won’t be on Morneau’s mind.

“We will carefully consider the international situation to make sure that our economy is competitive,” Morneau told reporters last week, in a veiled reference to the North American Free Trade Agreement.

Economists agree Ottawa should proceed with caution and prepare for the still unknown impact of the NAFTA talks. Nearly 90% of economists surveyed by BNN support the finance minister’s decision to table the budget before NAFTA negotiations are complete.

“It’s unclear when NAFTA negotiations will get resolved,” said Brian Madden, senior vice president and portfolio manager at Goodreid Investment Counsel told BNN. “It could take years. So, the show must go on.”

Meanwhile, respondents to the BNN survey were split on whether or not Morneau should revisit tax reform after last summer’s backlash to changes in small business taxes.

“Completely back off personal tax reform for private corporations,” Paul Gardner, partner and portfolio manager at Avenue Investment Management, told BNN.

Others, such as Ian Russell, president and CEO of the Investment Industry Association of Canada, said Morneau should tackle tax reform head-on. “This effort to lower tax rates and simplify the tax system will bolster confidence and encourage investment,” Russell said.

Morneau has hinted that clarifications to rules around passive income for small businesses will coming, after the suite of changes announced last summer.

Sebastien Lavoie, chief economist at Laurentian Bank told BNN that in addition to NAFTA uncertainty, U.S. tax reform and deregulation plans weigh on short- and long-term growth prospects. “A positive growth-friendly signal should be sent ideally from the federal government,” he told BNN.

Morneau says the Liberal government is conducting a careful analysis in regard to U.S. President Trump’s recent tax reforms, which cut the U.S. corporate tax rate from 35% to 21% at the beginning of the year.

“We are doing our analysis to make sure that we understand the impact of any changes, to make sure we get it right and not to act in an impulsive way,” Morneau told reporters.