Let those who feared gargantuan new spending be reassured. Yes, Chrystia Freeland’s second budget is hearty. But it’s not an all-you-can-eat buffet either.
Posted at 8:21 p.m.
Between the launch of new programs such as dental insurance and the consolidation of public finances, the Minister of Finance has cut the pear in two.
It must be said that the strength of the economic recovery has filled the State’s coffers and provided the big moneymaker with additional room for maneuver of 85 billion more over six years.
This windfall allows Chrystia Freeland to tackle the major challenges of the day, starting with inflation, which is eating away at household purchasing power.
Flagship measure of the budget: the Minister is investing $10 billion over six years to improve access to real estate. And it hits the right nail by pumping eight times more money into increasing supply – with the construction of affordable housing – than into stimulating demand, which would have driven prices up even more.
Except that to overcome the chronic lack of houses, it would be necessary to double the pace of construction over the next decade, which is far from a foregone conclusion with the labor shortage.
In the meantime, Ottawa will lend a helping hand to struggling first-time buyers, doubling the first-time home buyers’ tax credit – a $626 freebie – and introducing an account for encourage saving for a down payment.
Contributions of a maximum of $8,000 per year, up to a maximum of $40,000, will be eligible for an income deduction, but withdrawals will not be taxable, a costly and unusual mechanism that risks benefiting the wealthy more and having perverse effects.
For example, people who have no intention of buying a house can use it to expand their ability to save tax-free, since the money can then be transferred to an RRSP.
Another measure is perplexing: Ottawa wants to clean up real estate market practices by developing a charter of buyers’ rights that would target blind offers and purchases without inspection. The idea is not bad. But here, Ottawa is trampling on provincial jurisdiction.
Instead, the federal government should have tackled a problem that only it can solve: the unreasonable penalties that the banks impose on homeowners who have to end their mortgage before the end of their term.
Beyond the measures aimed at households, the budget targets other serious problems, such as the lack of private investment which is holding back the country’s economic growth. Virtually at full employment, our economy is facing the wall. To progress, we must increase productivity. But the measures proposed in the budget still lack detail.
And who will fund the new spending?
The banks that will pay more tax. And it’s fair game, because without government support for individuals and businesses during the pandemic, they would have drunk the cup.
Ah yes, and the feds are going to tighten the screw on the rich who have too much fiscal imagination and tax vaping products. So much the better.
All that won’t be enough to make up for the deficit, but when we look to the horizon, we see the glimmer of a balanced budget dawning in five years, with a micro-deficit of 8 billion, or 0.3% of GDP.
Except that there is a great risk that other expenses will be added along the way, since the provinces are campaigning for an increase in health transfers, NATO is demanding an increase in military spending to 2% of GDP (the budget does not only reduces them from 1.34% to 1.5% in five years). And we haven’t talked about the drug insurance program that is close to the heart of the NDP…
Nor do the forecasts take into account the major uncertainties that threaten the global economy. A faster-than-expected rise in interest rates to calm inflation could plunge us into recession.
In this context, now is not the time to have eyes bigger than your stomach.