The 2022 federal budget will include $10 billion for affordable housing

Finance Minister Chrystia Freeland, following a decades-old tradition, tries on a pair of shoes purchased a day before Budget 2022, at L’Intervalle shoe store in Ottawa on April 6.BLAIR GABLE/Reuters

Finance Minister Chrystia Freeland will table a budget on Thursday that promises $10 billion to make housing more affordable for Canadians, provides $8 billion in new defense spending and aims to spur economic growth through initiatives green and a tax cut for small businesses.

Defense and housing spending will be spread over about five years, a senior federal source said.

Business leaders have called on Ms Freeland in recent days to limit major spending to tackle rising inflation and to present an urgent action plan in the budget that makes economic expansion and productivity of top priorities.

Ms. Freeland’s budget message will be that spending on housing and green economy plans – outlined in last year’s Liberal campaign platform – encourages economic growth. The affordable housing plan is the centerpiece of the budget. The senior federal source said this addresses concerns about the cost of living and will help attract skilled immigrants at a time when businesses are facing huge labor shortages.

In addition to platform priorities, there will also be new funding for the Canadian military and measures to address NDP priorities, such as dental care, which were part of a cooperation agreement reached in March. between the Liberals in the minority government and the New Democrats.

The source said Ottawa would increase defense spending by $8 billion over about five years, primarily to modernize North American Aerospace Defense Command (NORAD), the continental defense system, and to purchase arms for Ukraine in its war against Russia. The extra money will not be enough to raise Canada’s military spending from the current level of 1.34% of GDP to the 2% demanded by NATO.

David Perry, president of the Canadian Global Affairs Institute, said Canada would need to spend an additional $17 billion a year to meet the NATO target.

The source said the budget will also include tax relief for small businesses. This will involve relaxing the current phase-out rules related to access to the small business tax rate. Small businesses currently benefit from a 9% tax rate on the first $500,000 of active business income, compared to the 15% corporate tax rate.

Access to this small business tax rate under the current rules begins to be removed when taxable capital exceeds $10 million, and is fully removed at $15 million. The senior federal source said the budget would adjust the phase-out schedule, but did not provide further details.

Dan Kelly, president of the Canadian Federation of Independent Business, said his organization has long been calling for such a change. Mr Kelly said on Wednesday it would be “good news” and encourage more small businesses to become medium-sized businesses.

Ahead of 2022 federal budget, Canadian businesses want Ottawa to act on economic policy – not just talk about it

A dose of fiscal discipline is the unsexy necessity of the Liberal budget

As promised during last year’s election campaign, the source said, the budget aims to tackle soaring housing prices. The Liberals will spend $4 billion to build 100,000 new homes in urban areas by 2025, and $2.7 billion for social and co-op housing. Ottawa will also create tax-free savings accounts to allow first-time home buyers to save up to $40,000, as well as a rent-to-own program. The total price is $10 billion over five years, the source said.

The source added that Ms Freeland’s budget will also honor the Liberals’ campaign promise to introduce legislation to ban citizens of other countries from buying residential properties for two years when they are not living in Canada. The Globe and Mail does not identify the source as they were not authorized to publicly discuss the budget measures.

Economists say money for affordable housing will have a significant impact on affordability for low-income Canadians. But they worry that providing cash to first-time home buyers and other such measures could drive up prices in an already overheated housing market.

Other budget measures include cutting red tape to make it easier for companies to access federal research and development funds. Ottawa will also spend more than $3 billion to rapidly expand the production and processing of critical minerals needed to make batteries for electric vehicles.

On climate change, a second high-level government source said Ottawa would offer tax incentives to oil and gas companies to invest in carbon capture and storage. Budget measures will also include incentives to increase the use of hydrogen and renewable fuels, and to encourage Canadians and businesses to adopt zero-emission vehicles. The Globe does not identify the source, which was not authorized to speak on budget matters.

The CEOs of RBC and Scotiabank have said Ottawa is not doing enough to promote long-term economic growth and called for Budget 2022 to fix that. Banks balked at the Liberals’ plan to introduce a 3 percentage point financial sector surcharge in Thursday’s budget.

On Tuesday, Trudeau said his government was fiscally responsible and the budget would keep the debt-to-GDP ratio on a downward trajectory. This “will always remain, as one of our key fiscal anchors,” he said.

The size of the federal debt nearly doubled, in dollar terms, during the pandemic and is expected to reach $1.25 trillion in the 2022-23 fiscal year that began April 1. The federal debt-to-GDP ratio rose from 30.7% to 47.6% during the pandemic. The government’s December fiscal update indicated that the debt-to-GDP ratio would decrease slightly over the next five years, reaching 44% by 2026-2027.

Private sector economists say stronger revenue forecasts since December likely mean this trend could be more pronounced, but that will depend on how much new spending is announced in Thursday’s budget.

Goldy Hyder, president of the Business Council of Canada, said he fears increased federal spending could add inflationary fuel to an already overheated economy.

“The last thing you want to do is stimulate the economy too much,” he said. “You trigger inflation, and inflation disproportionately hurts the middle class and the poor.”

Mr. Hyder said he expects Ms. Freeland to present a specific fiscal anchor that puts the debt-to-GDP ratio on a downward path. “It better be a real tax anchor, not something they made up,” he said.

William Robson, president and CEO of the CD Howe Institute, said the cost of federal borrowing is now cheap, but interest rates are rising and that will cost the Canadian economy.

“It’s just not reasonable to increase debt and not bring it down,” he said. “The Bank of Canada is going to have to raise the overnight rate a lot more than I think most people like.”

Other major prizes in the budget include dental care and pharmacare, which were key parts of the deal between the Liberals and the NDP. The dental plan for low-income Canadians would begin to cover children under 12 in 2022, and expand next year to cover the elderly and people with disabilities. All families with incomes below $70,000 would be fully covered and those with incomes below $90,000 would be partially covered.

Former Liberal finance minister John Manley, who also served as deputy prime minister in Jean Chrétien’s government, said publicly funded dental care and drug insurance could erode the benefits offered by private sector companies.

Private sector schemes are “already more generous than the new government scheme is likely to be”, he said, adding that he fears employers will cut back on what they offer employees expecting what public plans cover.

For Subscribers: Get exclusive political news and analysis by subscribing to the Political Briefing.

Comments are closed.