Despite new spending totaling $53 billion over the next five years, Finance Minister Chrystia Freeland is managing to limit the scale of the deficits, which some anticipated would be much larger. His strategy? Make the richest pay.
Forty billion dollars, or approximately 1.4% of Canadian gross domestic product (GDP). This is the deficit achieved for the budget year which ended on March 31. And that’s what the federal government predicted in its fall economic statement, down to the comma.
Several analysts predicted a much larger deficit. The Parliamentary Budget Officer himself, who acts as watchdog of public finances in Ottawa, expected it to increase by $46.8 billion for the 2023-2024 fiscal year.
For the year 2024-2025, the budget deficit is expected to amount to $39.8 billion (1.3% of GDP), a little more than what was forecast in the last economic update of fall (38.4 billion).
“With what is presented today, we respect the fiscal anchors. In my opinion, there will be no concerns about Canada’s AAA credit rating on the markets,” says Jimmy Jean, chief economist and strategist for Desjardins Group. “But this is based on hypotheses that will have to be realised,” he warns.
THE government expects to draw in approximately $19.4 billion in new revenue over the next five years from the increase in taxes on capital gains for individuals and corporations.
Tax the wealthiest
Canada’s wealthiest individuals will soon have to pay more taxes. Currently, capital gains are taxed at 50%. However, as of June 25, annual earnings that exceed the $250,000 mark will be taxed two-thirds by the federal government.
The measure concerns approximately 40,000 people (0.13% of the population), whose average income is $1.4 million.
“In fact, we are targeting taxpayers who, as we know, are very tax sophisticated. And this wealth can be moved very quickly, very quickly,” underlines Jimmy Jean, who believes that the forecasts of income derived from this measure are undoubtedly optimistic.
Corporations and trusts will also be taxed on their capital gains at two-thirds (66%).
No return to balanced budget
Minister Freeland, who tabled her fourth federal budget on Tuesday, still does not give a horizon for a return to budget balance. Since coming to power almost 10 years ago, the Liberals have never presented a plan to this end.
As part of the budget, Ottawa announces investments of 53 billion over the next five years, in particular for new measures targeting housing (8.6 billion), defense (10.7 billion) and new technologies such as artificial intelligence (6.9 billion).
An hour before tabling her budget, the minister described these investments as “necessary”.
“I am absolutely convinced that we need these investments to create conditions for a growing economy,” she said.
This is also the opinion of Guillaume Tremblay-Boily, researcher at the Institute for Socioeconomic Research and Information. “We are probably making a mistake by focusing on returning to a balanced budget,” he said, explaining that Canada’s debt level is low and that “it is the time to invest” to resolve the crises that the country is going through. the country.
The net federal debt is expected to stand at 41.9% of nominal GDP this year, compared to 42.1% last fiscal year.
Housing at the heart of the budget
The housing crisis plaguing the country, particularly since the pandemic, takes an important place in the new budget. Ottawa will invest 8.6 billion by 2028-2029 in different measures, including to accelerate construction.
With these investments, the government promises the construction of 3.87 million new housing units by 2031. It also asks for the collaboration of the provinces to “meet the challenge” of building at least 800,000 more net new housing units during the same period. period.
In recent weeks, the government had already stripped down several measures, including the allocation of $6 billion over 10 years, starting from 2024-2025, to launch the new Canadian Housing Infrastructure Fund.
The budget also provides for an investment of an additional $400 million to enable the construction of 12,000 more housing units over the next three years.
“The measures are interesting, but these are projects that will have impacts in a few years. There is no immediate impact for Canadian citizens,” notes Guillaume Tremblay-Boily.
The budget focuses heavily on the construction of private housing, but little on that of non-market housing, such as public housing from non-profit organizations and cooperatives. The government also announces that it will build housing on Canada Post and National Defense land and that it will convert federal office buildings.
In its budget, the government notes that the recent drop in temporary immigrants to 5% will result in “much less pressure” on the housing market.
A budget in orange ink
A sign that the agreement of support and trust between the Liberals and the New Democratic Party still holds, several programs called for by the New Democrats were put forward in the budget.
Although he would not confirm that he would support the budget, NDP leader Jagmeet Singh congratulated himself on having “forced the government” to include a series of investments in his budget, such as the national program of pharmacare, a flagship measure of its agreement of support and confidence with the Liberals.
The program is estimated at $1.5 billion over five years, starting in 2024-2025. In the short term, this universal, single-payer program will cover contraception and diabetes medications.
The federal government is committed to implementing coverage for these drugs after negotiations with the provinces. Quebec and Alberta have already announced their intention to exercise their right of withdrawal and obtain their share of federal money “without conditions”.
The development of a bill on safe long-term care for seniors — one of the measures provided for in the agreement between the two parties that had still not been implemented — was announced in the budget.
The leader of the official opposition, Pierre Poilievre, criticized the absence of a return to balanced budget, while the leader of the Bloc Québécois, Yves-François Blanchet, described the budget as a “great mass of interference” .