Federal Budget 2024 | Freeland’s bet

(Ottawa) New expenses. New taxes. No return to balanced budget on the horizon. And a clear signal to young people worried about the cost of living that Ottawa cares about their fate and is moving heaven and earth to resolve the housing crisis.

Finance Minister Chrystia Freeland tabled her fourth budget on Tuesday with a triple bet. First, that the new spending will not fuel inflation. Then, that the new taxes will go through like a letter in the mail because they affect the better off. Finally, that the accumulating deficits will not blur the message of hope that it sends to millennials and generation Z, who are increasingly seduced by the Conservative Party of Pierre Poilievre.

In this budget, the Trudeau government plans to keep the deficit below the $40 billion mark over the next two years, despite the flurry of announcements of new spending on housing, national defense and artificial intelligence, among others, in over the last two weeks.

To achieve this, it will draw more from the pockets of wealthy taxpayers as well as those of smokers while benefiting from economic growth that is slightly stronger than expected just six months ago.

Criticized by the Conservative Party, business people and certain economists who accuse it of having lost control of spending, the Liberal government maintains that it respects the budgetary anchors essential to maintaining Canada’s AAA rating, particularly in keeping the deficit below 1% of GDP.

M^me Freeland says Ottawa is succeeding in meeting its targets while making the necessary investments to tackle the housing crisis and the rising cost of living that are hitting many Canadians hard. It also confirms the equivalent of $36 billion in new spending over five years, several of which were announced by Justin Trudeau and his ministers before tabling the budget.

“Canadians know how important it is to manage their budget responsibly in the face of rising living costs. They rightly expect their government to do the same,” said the Minister of Finance in her speech to the House of Commons.

Thus, it forecasts that the deficit will stand at 39.8 billion in 2024-2025 and will reach 38.9 billion in 2025-2026. Red ink will still be in place in 2028-2029 since the deficit should be 20 billion.

The good performance of the economy will allow Ottawa to bring in 3.4 billion more than expected this year and 3.9 billion next year. The wealthiest will also be called upon to replenish federal coffers. M^me Freeland announced that starting June 25, the taxable portion of capital gains will increase from 50% to 66% for people who report more than $250,000 in capital gains annually. This measure, which would affect 40,000 taxpayers, should bring in 19.3 billion over five years, including 6.9 billion this year and 3.37 billion in 2025-2026.

To sweeten the pill, the country’s big money maker is proposing to increase the cumulative capital gains exemption by 25% on the sale of a small business or agricultural or fishing property, dropping it from 1 million to 1, 25 million. This measure will deprive the tax authorities of 1.6 billion over five years.

M^me Freeland also announced a reduction in the size of the public service by attrition of 5,000 employees over the next four years, a measure which should result in savings of 4.2 billion in total.

As of this Wednesday, excise duties on tobacco will be increased by $5.49 per cartridge while vaping products will be subject to a 12% increase in excise duties.

Series of measures for housing

In terms of spending, the Trudeau government confirms the implementation of a series of measures totaling 8.5 billion to accelerate the construction of housing in the country, in addition to advantageous loan programs. Its objective is ambitious: a minimum of 2 million new housing units more than the 1.87 million planned by the Canada Mortgage and Housing Corporation by 2030. It also proposes building housing on land owned at Canada Post and National Defense, in addition to converting underutilized federal buildings into housing.

Ottawa is also proposing to invest 1.5 billion over five years to lay the foundations of a national drug insurance program – a first phase which will offer coverage for diabetes medications and contraceptives. It will also increase the interest-free student loan and scholarship program by $1.1 billion.

The $5,000 subsidy program for the purchase of an emission-free vehicle is extended for two years. The bill is estimated at 607 million.

Debt costs on the rise

The fact remains that the costs of accumulated debt will continue to increase over the coming years. These costs will increase from 54.1 billion this year to 64.3 billion in 2028-2029.

Since coming to power, Justin Trudeau’s Liberals have never presented a balanced budget. The accumulated debt increased from 628 billion to more than 1213 billion.

“This budget is worse than we expected. The government is using a capital gains bazooka measure to finance still extraordinary expenses that are not sustainable in the long term. It is a budget that will make private investment less attractive in the economy. We are going to exacerbate the productivity problem in Canada,” said Robert Asselin, who advised Paul Martin and former Finance Minister Bill Morneau and who is now first vice-president of the Business Council of Canada.

In the budget, the Trudeau government announces its intention to “match immigration levels to the capacity to house people.” Starting in the fall, Ottawa intends to include for the first time admissions of permanent residents and admissions of temporary residents in the Immigration Levels Plan.

A government source, however, specified that the government would focus on reducing the number of temporary immigrants such as foreign students, temporary workers and asylum seekers. Thus, the objective of welcoming 500,000 permanent residents per year starting in 2025 remains unchanged.