Photo: Sean Kilpatrick The Canadian Press The Minister of Finance, Chrystia Freeland, still does not give a horizon for a return to budget balance. She defended herself from making investments that she describes as “so necessary”.
Sandrine Vieira and Clemence Pavic in Ottawa
7:37 p.m.
- Canada
Despite new spending totaling $53 billion over the next five years, Finance Minister Chrystia Freeland is managing to limit the scale of deficits that some predicted would be much larger. His strategy ? Make the richest pay.
$40 billion, or approximately 1.4% of Canadian gross domestic product (GDP). This is the deficit realized for the fiscal year which ended on March 31. And this is 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 widen 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), slightly more than was forecast during the latest fall economic update (38.4 billion).
“With what is presented today, we respect the fiscal anchors. In my opinion, there will be no concern for Canada's AAA credit rating on the markets,” said Jimmy Jean, chief economist and strategist for Desjardins Group. “But that’s based on assumptions that will have to be made,” he warns.
The government expects to draw in about $19.4 billion in new revenue over the next five years from increases in personal and corporate capital gains taxes.
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Tax the most fortunate
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 affects 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 revenue projections derived from this measure are undoubtedly optimistic.
Corporations and trusts will also be taxed on their capital gains by half to 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 ten years ago, the Liberals have never presented a plan to return to power.
As part of the budget, Ottawa announces investments of 53 billion over the next five years, notably for new measures in housing (8.6 billion), defense (10.7 billion) or again new technologies such as artificial intelligence (6.9 billion).
One hour before tabling her budget, the minister described these investments as “so 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 facing the country.
Net federal debt is expected to be 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 various measures, notably to accelerate construction.
With these investments, the government promises to build 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 new housing units net more during this same period.
In recent weeks, the government had already taken a look at several measures, including a $6 billion fund over 10 years, starting in 2024-2025, to launch the new Canadian Housing Infrastructure Fund.
The budget also includes an investment of an additional $400 million to enable the construction of 12,000 additional 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 places a lot of emphasis on the construction of private housing, but little on 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 lands and 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.
New Democrat Leader Jagmeet Singh congratulated himself on having “forced the government” to include a series of investments in his budget, such as the national pharmacare program, a flagship measure of the 'understanding.
The program is costed at $1.5 billion over five years, starting in 2024-25. 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 medications 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 which had still not been achieved — was announced in the budget.
Official Opposition Leader Pierre Poilievre criticized the lack of a return to balanced budgets, while Bloc Québécois Leader Yves-François Blanchet described the budget as “the great mass of interference.”< /p>
Reduction of the size of the State
The government also expects to make savings of 4.2 billion over four years by reducing the size of the public service by approximately 5,000 full-time positions, a process which will be done “thanks to the “natural attrition in the public service”, i.e. resignations and retirements.