Posted yesterday at 4:07 p.m.
Indelible red ink
Ottawa is forecasting a $52.8 billion deficit this year. If this shortfall has nothing to do with the scale of the deficits recorded since the start of the pandemic – 328 billion in 2020-2021 and 114 billion in 2021-2022 – the fact remains that the return to a balanced budget is not on the horizon.
Deficits will continue to accumulate, but should gradually decrease to $8.4 billion in five years. Consequence: the federal debt will continue to increase.
For the current fiscal year, the hole in public finances is expected to amount to 2% of real gross domestic product (GDP) – adjusted for inflation. The federal debt will represent 45% of GDP. Despite the accumulation of deficits, this indicator, which measures the health of public finances, should continue to improve over the next few years.
Multiply new homes
Home ownership is becoming more complex with soaring house prices across the country and Finance Minister Chrystia Freeland’s budget calls for more than $9 billion in hopes of alleviating the “housing shortage” that is rages.
At least 3.5 million new units are needed by 2031 to remedy the situation. Ottawa will notably set up a fund to accelerate the construction of housing, all categories combined, a measure that will cost 4 billion. The social housing niche will also receive 1.5 billion over two years to improve supply. The budget envelope will also finance measures to facilitate the purchase of a first property.
In addition, in the hope of curbing real estate speculation, the Trudeau government decreed a two-year moratorium to prohibit foreign investment in the Canadian real estate market. He does not rule out the possibility of going further if necessary.
A dentist for all
It’s not yet known how, but $5.3 billion over five years will be used to provide dental insurance for under-12s this year; the program will then be gradually extended to families with an annual income of less than $90,000.
This commitment, a condition of the New Democratic Party to allow the Liberals of Justin Trudeau to govern as if they were a majority, should cost 1.7 billion annually in the long term.
A package of services for children under 10 is already covered by the Régie de l’assurance maladie du Québec (RAMQ). It is not yet known whether the province will opt for its right to opt out in exchange for financial compensation. Federal officials were unable on Thursday to explain how the federal program will be rolled out. Announcements are forthcoming.
Putin’s Shadow
The geopolitical context changed overnight when Russian President Vladimir Putin decided to launch a military offensive against Ukraine on February 24. Ottawa will thus allocate an additional $8.1 billion by 2026-2027 to “strengthen” the Canadian Armed Forces.
In 2026-2027, Canada will devote 1.5% of its GDP to the defense sector, compared to 1.36 currently. This effort will not enable the country to meet the 2% criterion set by NATO. For years, Canada has been criticized for being behind in this regard. To reach the NATO target, the National Defense budget would have had to be increased by approximately $15 billion annually.
The Freeland budget also provides 940 million over five years, including 690 million this year, to support Ukraine, which is still trying to resist Russia’s offensives.
A recovery bank tax
The pandemic has allowed financial institutions to make golden deals and the Trudeau government has decided that the time has come for them to share. We nevertheless decided to cut the pear in half.
A “recovery dividend” will allow the federal government to raise about $4 billion over five years. It will take the form of a “one-time tax” on income which will be spread over five equal annual installments. Ottawa justifies this measure by these important pandemic relief measures having made it possible to “reduce the risks of some of the largest” banks.
In addition, life insurance companies and banks will see their tax rates increase by 1.5 percentage points, which will raise 2 billion over five years. However, this measure does not go as far as the 3 percentage points mentioned by Justin Trudeau during the last election campaign. The promise had been criticized by the Canadian banking sector, which considered that it amounted to taxing their shareholders.
Solutions for polluters
Industrial polluters such as cement manufacturers as well as steel companies will have access to tax credits of 2.6 billion to deploy means of capturing and storing carbon to reduce their greenhouse gas emissions.
According to federal officials, the prohibitive cost of these technologies is holding back their adoption. The Trudeau government is thus proposing three tax credit rates to large industrialists to implement these tools.
By 2030, the tax credit is expected to remove 15 megatonnes of CO annually2 resulting from the use of fuels and various industrial processes. By way of comparison, Quebec emits 80 megatonnes of CO2 per year.
According to the budget, the tax measure will be available until 2040. Its annual cost is estimated at $1.5 billion starting in 2026-2027.
Bollards and mines
In addition to subsidies for the purchase of electric vehicles, the budget sets aside 400 million to add charging stations in more remote locations. Ottawa believes it is responsible for “building the infrastructure that drivers can rely on”.
The Infrastructure Bank will also pitch in with a half-billion dollar effort to improve “recharging and refueling infrastructure”.
Critical minerals like lithium, nickel and cobalt are essential in the manufacture of electronic devices and lithium-ion batteries for electric vehicles. The federal strategy provides $1.7 billion to stimulate projects in these sectors. Quebec already has its own strategy.
Accelerate reconciliation
The Freeland budget also calls for new investments of about $11 billion over six years, including $2.5 billion this year. About half of the envelope is intended for a package of measures to accelerate access to services for First Nations children. The other half is intended for Aboriginal communities.