2005 Canadian federal budget

• 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.[plan 1]
• 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[plan 2]
• 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 (16% of a maximum of $10,000 of eligible expenses) to be indexed in taxation years after 2005 ;[plan 3]
• More expenses are made eligible to the Medical Expenses Tax Credit.[plan 4]

• Corporate tax rate reductions: the general tax rate will be lowered to 19% (from 21%) by 2010 in 3-steps : 20.5% starting on 1 January 2008, 20% on 1 January 2009 and finally 19% on 1 January 2010 ;[plan 5]
• 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.[plan 6]
• Incentives for scientific research and experimental development (SR&ED) are made eligible for expenses incurred in Canada's Exclusive Economic Zone.[plan 7]

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.

The Conservative Party, the largest opposition party, surprised many by announcing that it would support the budget immediately after it was read in the House of Commons. Party leader Stephen Harper described it as "better than expected", and described its focus on tax cuts and defence spending as being in line with Conservative policy. It is highly unusual for the official opposition to vote in favour of the government's budget. However, Harper later changed his position on the budget, and his party joined with the NDP and the Bloc Québécois in the largest abstention in Canadian history.

The Bloc Québécois and party leader Gilles Duceppe, who were demanding an overhaul to employment insurance and the elimination of the fiscal imbalance, voted against the budget.

The New Democratic Party voted against the budget on first reading. Leader Jack Layton agreed with Harper that it was a "conservative budget" and was especially critical of the corporate tax cuts and the limited new funding for social programs.

Prior to the second reading the political situation changed dramatically due to Jean Brault's explosive testimony at the Gomery Inquiry. Stephen Harper announced that the Liberals had lost the moral authority to govern and vowed to bring down the government. Thus when the budget came to its second reading the Conservatives rallied against it. In order to ensure the continued confidence of the House, the Liberals struck a deal with the NDP to amend the budget. This amendment called for a reduction of the foreseen corporate tax cuts and $4.6 billion in additional spending on social programs.

Despite the NDP support, the government remained in a precarious position, requiring the support of all three independent Members of Parliament (MPs). On May 17, Conservative MP Belinda Stronach crossed the floor to the Liberals, giving them a crucial extra vote. Soon after, Liberal polling numbers ended their slide and began to recover. Two Conservative MPs from Newfoundland and Labrador, Loyola Hearn and Norman Doyle, were also pressured by provincial premier Danny Williams to vote in favour of the budget, as it included the provisions of the government's recent Atlantic Accords. The Conservatives eventually announced that they would vote in favour of the main budget bill, containing the Atlantic Accord, but would vote against the second bill containing the NDP amendments.

The budget was criticized by many labour unions and interest groups:[2]

• The University student federation of Quebec criticized the lack of funding for post-secondary education and the increase in the defence budget ;
• Quebec's Hospitals Association and the Federation of Medical Specialists of Québec criticized the budget on the grounds that it did not address fiscal imbalance and increase health transfers despite the promises made by the federal government in the September 2004 Health Accord.

The budget was not received warmly by the business community:[3]

• The Quebec Council of Employers did not find that the budget addressed its demands and that the tax cuts were not large enough to address the increase in value of the Canadian dollar ;
• The Quebec's Chamber of Commerce Federation criticized the gradual approach taken by the budget towards tax cuts although the Montreal Chamber of Commerce approved the transfer of a fraction of the Excise Tax on Gasoline to municipalities ;
• The Montreal Economic Institute rejected the budget proposed tax cuts as immaterial and criticized that they would not materialize before 2008.

The péquiste Bernard Landry, leader of the Official Opposition in Quebec, strongly criticized the budget, even saying that the Premier of Quebec Jean Charest had been cheated by the budget. He notably criticized Jean Charest for not standing up to Ottawa on fiscal imbalance and the federal government for its intrusion in provincial competencies, notably in childcare. François Legault, PQ's finance critic, also criticized the increase in defence spending and the tax cuts to wealthy individuals.[4]