MATT LUNDY ECONOMICS REPORTER | JASON KIRBY
April 8, 2022
While “middle class” and “innovation” were the buzzwords of past federal budgets, this year the focus was on consumer wallets. The words “affordable” and “affordability” combined for more than 100 mentions in the 2022 edition – understandable, given that Canada’s inflation rate recently hit a 30-year high of 5.7 per cent, with many economists predicting it will climb even higher in the months ahead.
To that end, a great deal of emphasis in the budget – and billions in new spending – is aimed at housing affordability. The typical home price has skyrocketed 51 per cent in just the past two years, fuelled partly by speculators and record-low mortgage rates that are now headed upward.
But the budget also includes dozens of other initiatives, from dental care and military spending to tax breaks for small business – and tax hikes for Bay Street. Here are the highlights.
The economic recovery is a having a palpable effect on federal coffers. The deficit for the 2021-22 fiscal year that ended March 31 was $113.8-billion – much improved from the $144.5-billion projected in December. The same trend applies to the five-year forecast. For the 2022-23 fiscal year, the deficit will ebb to $52.8-billion (versus December’s $58.4-billion), eventually sinking to $8.4-billion by 2026-27 (versus $13.1-billion).
Canada’s inflation rate recently hit a three-decade high, much to the chagrin of many households. But the situation is delivering a cash infusion to governments, helping their bottom lines. All told, Ottawa is sitting on a revenue windfall of roughly $85-billion over six years, relative to projections in late 2021. Against that rosier backdrop, the government committed to more than $56-billion in new spending Thursday, partly offset by new taxes.
The government said it “remains committed” to its fiscal anchor of reducing federal debt relative to gross domestic product. Over the next five years, the federal debt-to-GDP ratio is projected to fall five percentage points, to 41.5 per cent.
Russia’s invasion of Ukraine has spurred many Western countries to overhaul their defence spending. The budget signals that Canada is stepping up, though many will argue it’s still not doing enough.
While announcing a review of Canada’s defence policy, the budget promises $6.1-billion over five years in direct new spending by the Defence Department to increase the capabilities of the Canadian Armed Forces, with an additional $1.4-billion in annual spending after that. Even with the increase in annual defence spending, which is projected to rise to about $41-billion in fiscal 2026-27, Canada will still fall short of the NATO target of 2 per cent of GDP.
The budget also calls for Canada to ramp up its support for Ukraine. To date Canada has provided $90-million in military aid, including weapons such as machine guns and anti-tank rockets, as well as non-lethal items such as flak vests. That figure is set to jump another $500-million this year, though the budget does not provide a breakdown of how much of that spending will be on lethal versus non-lethal support.
While boosting support for Ukraine, the budget promises to seek clarity on Ottawa’s ability to seize and dispose of the assets of sanctioned individuals, including more than 1,000 Russians that Canada has sanctioned since 2014, when Russia invaded and annexed Crimea.
The federal government is proposing more than $10-billion in new spending on a slew of housing-related initiatives, much of it aimed at increasing supply. The largest chunk, $4-billion over five years, is for the launch of a Housing Accelerator Fund, which aims to speed up development and create 100,000 new housing units.
The budget also proposes sending $1.5-billion over two years to the federal housing agency to extend the Rapid Housing Initiative, with the expectation that at least 6,000 new affordable housing units get built.
A January report from Bank of Nova Scotia found that, among G7 countries, Canada had the lowest supply of homes on a population-adjusted basis. Supply was particularly weak in Alberta, Manitoba and Ontario. To match its G7 peers in per-capita housing supply, Scotiabank estimated that Ontario would need an additional 1.2 million homes, underscoring the dearth of availability in major markets.
The federal government is proceeding with a two-year ban on home purchases by foreigners, following a pledge in the 2021 election campaign. However, many foreign buyers will be exempt from the ban, including individuals on work permits who are living in Canada.
The government is also moving forward with a new savings account aimed at helping first-time home buyers. Contributions will be tax-deductible, as with RRSPs, while withdrawals to purchase a home will be non-taxable, as with tax-free savings accounts.
The government is working toward a 2023 launch of the account, which will allow buyers to save as much as $40,000 toward the purchase of a home.
Several economists have said that targeting foreign home buyers will have a negligible effect on affordability, given their small share of total activity. Moreover, demand-side housing measures are frequently criticized for helping people spend more on home transactions, thereby only pushing up prices.
The Liberal-NDP pact has led to a new commitment on dental care, a key priority for the New Democratic Party and the largest portion of new spending on health care.
The budget proposes $5.3-billion in funding over five years and $1.7-billion in continuing funding to expand access to dental care. The plan starts this year with children under 12 and will eventually reach full implementation by 2025.
In 2018, slightly more than one in five Canadians (about 6.8 million people) avoided visiting a dental professional because of costs, according to Statistics Canada.
The frequency of visits is noticeably lower among people without dental insurance and in lower income brackets. The budget says the program will be limited to families with incomes of less than $90,000 a year. There will be no co-pays for those earning less than $70,000 a year.
Several policy analysts have said that implementing a federal dental program could prove tricky because of existing coverage under provincial programs and private insurers.
The budget promises $7.5-billion in various green initiatives as part of Canada’s goal to reach net-zero emissions by 2050, though many were extensions of existing or previously announced initiatives.
As part of Ottawa’s housing strategy, the budget promises about $700-million to promote greener buildings and neighbourhoods, including $150-million over five years to revise building codes to promote the use of low-carbon construction materials and $200-million over the same period to boost “deep retrofits” of large building projects.
This week, as part of the federal government’s new emissions-reduction plan, it revealed electric-vehicle mandates that would see EVs account for 60 per cent of all new light-duty vehicle sales by 2030. To that end, the budget promises $1.7-billion over five years to extend incentives of as much as $5,000 for the purchase of zero-emission vehicles.
The budget also promises new incentives for businesses to adopt EVs, including $548-million over four years to encourage the purchase of medium- and heavy-duty zero-emission vehicles.
To keep those vehicles moving, the budget repeats promises made this week for the Canada Infrastructure Bank to invest $500-million in urban charging infrastructure, as well as $400-million over five years to build out suburban and rural charging stations.
A credit for investments in clean technology was also floated, with details to come in the fall economic update, as well as a refundable tax credit for businesses that invest in carbon-capture technologies that is expected to cost $2.6-billion over five years.
The government finally unveiled its plan to raise taxes on large financial institutions – and the details are quite favourable to Bay Street.
To start, banks and life insurers would pay a one-time, 15-per-cent tax on taxable income above $1-billion for the 2021 tax year, in what the federal government is calling a Canada Recovery Dividend on financial institutions that reaped large profits during the pandemic.
Secondly, those companies would see a permanent increase to the federal corporate income-tax rate – to 16.5 per cent, from 15 per cent – on taxable income above $100-million. During the 2021 election campaign, the Liberals proposed a steeper increase, to 18 per cent, on taxable earnings above $1-billion.
The party’s election platform estimated the two measures would bring in $10.5-billion over four fiscal years, ending in 2025-26. However, Thursday’s budget estimates the measures will deliver $6.1-billion in revenue over five years.
Canada’s small-business sector may be an important driver of growth, but small businesses and the Trudeau government have had a rocky relationship at times.
Against that backdrop, the budget promises small-business owners a new tax break. As it stands, small businesses enjoy a tax rate of 9 per cent on the first $500,000 of taxable income, whereas the corporate tax rate is 15 per cent. However, once a business’s taxable capital reaches $15-million, it loses access to the lower tax rate. That can discourage businesses from expanding.
Under a proposal in the budget, the small-business tax rate will be phased out more gradually, with taxable capital of $50-million becoming the new cutoff for access to the lower tax rate.
The measure is expected to cost $660-million over five years.
The budget also threw a bone to small-business owners, the majority of whom have said they support the adoption of a trust model to encourage employee ownership. After Ottawa announced in the 2021 budget that it would “examine” the hurdles to employee ownership trusts in Canada, this budget proposes the creation of a dedicated trust vehicle under the Income Tax Act.
- Several new spending initiatives related to wildfires, including $269-million over five years for the procurement of firefighting equipment
- $625-million over four years to establish an early learning and child-care infrastructure fund to support non-profit and public providers in situations where real estate and building material costs are too high
- More than $385-million over five years and $86.5-million a year thereafter to speed up the processing and entry of immigrants, students and visitors
- A proposed $500 payment to those facing housing affordability challenges
- More than $600-million in funding to “build more resilient and efficient supply chains,” which have been snarled for two years and have contributed to hefty price gains
- $1.5-billion over seven years to boost the development of Canada’s critical minerals sector, including lithium, molybdenum, graphite and other minerals used in clean technology, health care, aerospace and computing
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