A prudent budget
On April 7, 2022, Finance Minister Chrystia Freeland presented the 2022-2023 Federal Budget. This is the first budget tabled by the Liberal government since its re-election on September 20, and also the first since the more recent announcement of a political alliance between the troops of Justin Trudeau and the New Democratic Party (NDP).
The tabling of this eagerly anticipated budget comes at a time when the Canadian economy is steadily reopening following the lifting of most health measures by provinces across the country. Also, a significant increase in the price of several raw materials, which affects Canadian businesses, and in the cost of living in general, has been observed since the end of February, due to the economic disruption caused by the Russian invasion of Ukraine.
Statistical and financial data
Unemployment is down to 5.5%.
Government spending for 2022-2023 is estimated at $452.3 billion, plus actuarial losses of $8.9 billion;
Revenues for the same period are estimated at $408.4 billion;
The projected federal deficit for 2022-2023 is at $52.8 billion;
No target date is set for returning to a balanced budget.
Today's budget by the Government of Canada provides for further growth in federal spending over the next few years, but it is more constrained than anticipated. The Liberal budget focuses on key social issues such as housing, healthcare and climate change. It also contains measures to support the Canadian economy and the development of innovation.
One of the key measures in today's budget is the creation of a tax-free savings account for first-time home buyers. An individual will be able to contribute up to $8,000 per year, to a maximum amount of $40,000. Withdrawals from the account will not be taxable.
In order to combat real estate speculation, a two-year moratorium on the purchase of residential property by foreign individuals is enacted and will come into effect at a later date. The precipitous resale of a property (within a 12-month period) will be subject to full taxation on its profits as income. This is an end to the capital gains exemption for so-called “flips”.
The federal tax credit for the purchase of a property is also doubled, to $10,000. Eligible expenses for the Home Affordability Tax Credit are also doubled to $20,000. In terms of housing, the government plans to invest $4 billion over five years to build 100,000 housing units through the creation of a Housing Acceleration Fund. A sum of $500 will also be offered to Canadians who face difficulties in accessing affordable housing.
In terms of healthcare, the most important measure in the Freeland budget is an investment of $5.3 billion over five years to provide dental care to Canadians with a family income of less than $90,000. This plan will start with Canadians under 12 years of age in 2022, and will expand to Canadians under 18, seniors and people with disabilities in 2023. The budget does not include any substantial increase in health transfers to the provinces or the introduction of a national drug plan.
1.7 billion in funding over 5 years to continue the Zero Emission Vehicle Incentive Program until March 2025. 547.5 million over 4 years to expand the incentives to include electric vans, trucks and SUVs. Ottawa plans to establish a national network of electric vehicle charging stations. The budget also announces the creation of a business tax credit ranging from 37.5% to 60% for carbon capture and storage.
The federal budget introduces a labour mobility deduction that will recognize up to $4,000 per year in travel and temporary relocation expenses for tradespeople and apprentices. The budget also invests $2.1 billion to build capacity to meet the immigration demands of the growing economy, which is a pressing need right now. There is also $385.6 million to facilitate the arrival of visitors, students and workers to Canada.
The federal budget provides for a more gradual elimination of access to tax rates for SMEs. Access to the reduced rate will be completely eliminated when taxable capital reaches $50 million, compared to the current $15 million. More SMEs will be able to qualify for the lower 9% tax rate. Details of this measure will be released in the coming weeks.
The budget includes a temporary Canadian Recovery Dividend for large banks and life insurance companies. It is a one-time tax of 15% on all taxable income in excess of $1 billion in 2021. The corporate income tax rate is permanently increased by 1.5% on the taxable income of large banks and life insurance companies above the $100 million threshold.
The federal budget provides $8 billion for the purchase of military equipment for the Canadian Armed Forces and to strengthen the country's contributions to NATO and NORAD.
Unlike the last few federal budgets, which were tabled in pre-election contexts, the document presented today by Chrystia Freeland seems to take a longer-term perspective. The alliance between the Liberals and the NDP earlier this year, which ensures the stability of the federal government until 2025, provides the Finance Minister with a predictable horizon that is somewhat reflected in this budget.
The budget remains in deficit and proposes new investments, but these are more modest than many analysts had anticipated. The budget presented today contains several interesting measures, notably in the area of access to property and incentives for innovation. The more gradual elimination of access to lower tax rates, as well as investments to speed up the processing of immigration applications, will be welcomed by small and medium-sized businesses.
However, the fiscal situation remains tight. Canada is among the countries that took on the most debt during the COVID-19 pandemic. The OECD warned Canada last year that a clear, credible and transparent plan to return to balanced budgets was essential to prevent the public debt from spiralling out of control. Yet, while the deficit is projected to be reduced to $8.4 billion in five years, the federal budget does not set a specific target for achieving a zero deficit.
The government is leaving itself room to manoeuvre in the event of another economic downturn. With the end of the pandemic and the current strength of the economy, we can anticipate a continued improvement in Canadian public finances over the next few years.
With some of the announced investments falling under provincial jurisdiction, Prime Minister Justin Trudeau will have to manoeuvre carefully to avoid collisions with his provincial counterparts. The provinces will be upset that today's budget does not meet the provinces' unanimous demand for a 35% increase in federal health transfers, without conditions, which will put additional pressure on provincial health systems, already hard hit by the COVID-19 pandemic.
The budget is expected to receive easy passage through the House of Commons because of the recent pact between the Liberals and the NDP. Leader Jagmeet Singh spoke favourably of the budget, noting that some of his party's priorities, including the dental program, were reflected in it.
The Conservative Party, on the other hand, criticized the budget for a lack of fiscal discipline and the absence of immediate support for home ownership. Similarly, the Bloc Québécois noted the lack of an increase in federal health transfers, a favourite of Quebec, and the imposition of various conditions on the province.
It should be noted that in the event of a discrepancy with official Government of Canada documents, the latter take precedence.