Finance Minister Chrystia Freeland will table the federal budget later today — a plan to respond to a global climate of economic uncertainty that could prove painful for Canadians in the months and years to come.
Ongoing COVID-related disruptions, the war in Ukraine, and significantly higher and still rising interest rates have muddied the economic picture that Freeland presented just months ago in its latest fiscal update.
Canada is struggling with an affordability problem as the rate of inflation, now at its highest level in decades, drives up the price of just about everything, especially housing.
The pandemic has exacerbated pre-existing housing market problems. Prices are so high in most markets that nine out of 10 potential buyers questioned in a recent poll said they had all but given up on the dream of owning a home.
Since the current Liberal government came to power in 2015, the average price of a home in Canada has doubled to $816,720, the highest average on record.
Elliot Hughes is a senior adviser at Summa Strategies and a former staffer of former finance minister Bill Morneau.
In an interview with CBC News, Hughes said he expects Freeland’s budget to be “a fairly targeted, lean and strategic budget that will be fairly targeted in the support it provides to policy sectors and areas. specific”.
“It will be very, very targeted, unlike previous budgets by this Liberal government,” Hughes said. “If there’s one theme they would like Canadians to take away from this budget, it’s that the government is trying to help people with housing.”
With the Bank of Canada signaling that it will raise its overnight interest rate by 50 basis points next week to counter inflation – a move that will drive mortgage rates up sharply – housing will become “just much more difficult and problematic for Canadians”. and it will be a much bigger challenge for the government,” Hughes said.
Government sources speaking to CBC News said the federal Liberals are aware of the issue of affordability and Freeland’s budget will outline a plan to provide relief to Canadians worried about the skyrocketing cost of living. .
The federal government, working with the provinces and territories, has already begun rolling out National Child Care Services – a program that will save some parents thousands of dollars a year by immediately reducing the costs associated with daycare services.
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Beyond this child care program, the budget should also explain how the government intends to ensure that more people have their own homes. Government sources have said they expect this budget to be known as the “housing budget” as much of the document will be tailored to this issue.
“What is the biggest expense you have? Where do you live,” said a government source, who spoke on condition of anonymity because she was not authorized to speak publicly.
“It will be a mixture of short, medium and long term things that you can do that deal with cost elements and also the feeling that the system is working against [Canadians].”
Upcoming ban on foreign buyers
Sources tell CBC News the Liberal government will keep its promise to ban foreign buyers from buying non-recreational residential properties in Canada for the next two years – an attempt to stop foreign money driving prices higher than they are.
The Liberal housing platform from the last election offers some clues as to what Freeland’s second budget as finance minister might contain.
During the campaign, the party promised to create a new Tax-Free Home Savings Account, an investment vehicle allowing Canadians to save up to $40,000 and enjoy tax benefits on any gains shift.
The party also promised to double the tax credit for first-time home buyers from $5,000 to $10,000, which will net a homebuyer about $1,500 at tax time to help offset closing costs associated with a purchase.
A problem of shortage and high demand
The Liberals have introduced a plan to offset monthly mortgage costs by reducing insurance premiums charged by Canada Mortgage and Housing Corporation (CMHC) on certain loans. They also said they would make the First-Time Home Buyer Incentive – a shared equity mortgage program that allows the government to provide funds for a down payment in exchange for an equity stake – more flexible. House.
But Kevin Lee, CEO of the Canadian Home Builders’ Association, said the government couldn’t just focus on those kinds of incentives. He said that house prices are high in Canada because there are not enough of them.
“It’s good old economics. It’s also about supply and demand. When you don’t have enough, prices go up and that’s what we see,” he said. at CBC News.
Lee said Canada has far fewer housing units per person than other developed countries. In fact, recent estimates suggest Canada has about 1.8 million fewer households than the G7 average.
Over the past 20 years, Canada has built approximately 200,000 new homes per year. At the current rate, it would take years of steady construction just to bring Canada’s housing stock to the levels seen in other Western countries.
The Housing Acceleration Fund
Lee said Canada needed to ramp up construction and consistently repeat the record year homebuilders had in 2021, when they produced more than 270,000 new units — a pace of construction not seen in five decades.
Lee said the housing crisis “is really the number one problem we have right now as a country.” He suggested a possible solution in the “housing acceleration fund” that the Liberal Party launched during the last election campaign.
The party platform said the government would allocate some $4 billion to municipalities that are “increasing housing supply faster than their historical average” – part of a plan to build 100,000 new homes for the middle class in Canadian cities by 2024-2025. This money could serve as an incentive for municipalities to facilitate the construction of houses.
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“We need solutions and we hope the budget will deliver on that commitment,” Lee said. “We need that $4 billion for municipalities to help them open the door to procurement – that’s key.
“We need more densification, we need to speed up approval times, we need to reduce some red tape and streamline systems. We’ll have to see how they structure this program.”
A return to more “normal” spending?
As well as a laser focus on housing, government sources say the budget will also detail other priorities. They include a promised increase to Canada’s national defense budget – one source says the funding will go towards modernizing the North American Aerospace Defense Command (NORAD) – and new details on a tax incentive for revive the use of carbon capture, use and storage (CCUS) to help offset greenhouse gas emissions associated with fossil fuels.
Hughes said he thinks the Liberal government will also show it’s ready to return to more “normal” levels of spending after years of massive budget deficits as the country faced the worst of the pandemic.
With much of Canada’s business worried about the country’s growing debt load, Hughes said he believes Freeland will produce a budget that will show Canada’s debt-to-GDP ratio – the “point of the government’s favorite “fiscal anchor” – will steadily decline in the years to come.
“If we see a tight budget – and I use the term ‘stretch’ loosely when it comes to this government – I think that will come down to Minister Freeland, that will be her stamp on that. She will get her on her feet with the prime minister and other ministers on spending,” Hughes said.