HIGHLIGHTS:
- Ottawa to spend $52.9 billion more than planned over the next five years.
- Finance Minister Chrystia Freeland projects Ottawa will post a $40 billion deficit this fiscal year.
- The budget includes $8.5 billion in new spending for housing.
- Other big-ticket budget items include a $6 billion Canada Disability Benefit and a $1 billion national school food program.
- Freeland will hike capital gain taxes paid by the rich and corporations to collect an estimated $19 billion in new revenue.
- The cost to service the growing national debt has increased substantially — it’s now about $2 billion more than it was projected to be just a few months ago.
- The government will spend more on servicing its debt than on health care this year.
Finance Minister Chrystia Freeland’s fourth budget delivers a big-ticket housing program for millennials and Generation Z voters — a multi-billion dollar commitment to be paid for in part with a tax hike on the rich and corporate Canada.
Freeland’s document calls for about $52.9 billion in new spending over the next five years — a significant jump over what Ottawa had said it would spend in the fall economic statement released just a few months ago.
To offset some of that new spending, Freeland is pitching policy changes the government says will generate roughly $21.9 billion in new revenue over the next five years. That money is to come in part from higher capital gains taxes and a hike to excise taxes on cigarettes and vaping products.
“We are making Canada’s tax system more fair by ensuring that the very wealthiest pay their fair share,” Freeland said Tuesday after tabling her budget in Parliament.
“We are doing this because a fair chance to build a good, middle class life — to do as well as your parents, and grandparents, or better — has always been the promise of Canada.”
The result is a projected budget deficit of about $40 billion in the 2024-25 fiscal year — roughly what Freeland had predicted.
While the government is spending more overall, it says that better-than-expected economic growth and higher taxes will keep the deficit under control.
The Liberal government’s preferred “fiscal anchor” — the budget benchmark that guides its decisions — has long been to keep the net debt-to-GDP ratio on a declining trend, with debt levels closely tracking the overall size of the economy.
The budget document says the government must meet that benchmark in the years ahead to retain Canada’s triple-A credit rating.
Debt charges soar
Deficits eventually roll over into long-term debt. The cost to finance Canada’s growing debt pile — which has more than doubled over the last nine years to $1.4 trillion — is eating up more and more taxpayer dollars as the government is forced to refinance its borrowing at higher rates.
Public debt charges will cost $2 billion more this year than the forecast in November as the Bank of Canada keeps rates relatively high to tame inflation — which has shown signs of slowing down.
With interest rates at a 20-year high, Ottawa’s cost to borrow has spiked from $20.3 billion in 2020-21 to $54.1 billion in 2024-25.
That means Ottawa will spend more to service its debt than it will on health care this year — and the debt charges will march even higher in the years ahead.
Carrying the debt is expected to cost the federal treasury $64.3 billion in 2028-29 — more than double what Ottawa sends to the provinces through equalization payments.
“The interest rates are hurting the government just as much as they’re hurting us consumers,” said Sahir Khan, a former deputy parliamentary budget officer and the executive vice-president of the uOttawa Institute of Fiscal Studies and Democracy.
“It’s now a meaningful amount relative to other spending pressures and it’s going to start squeezing other programs. The government built up a stock of debt subject to prevailing interest rates and that creates a risk.”
Billions more for housing
The budget allocates $8.5 billion more to housing to help alleviate a crisis that has locked a generation of young people out of the dream of home ownership. The government maintains its housing measures will drive the creation of roughly four million more homes by 2031.
Freeland has freed up money to send more cash to municipalities through the Housing Accelerator Fund, build more homes on underused public lands and at Canada Post outlets, cut cheques for new water and solid waste infrastructure in growing communities, offer tens of billions of dollars in loans to spur new rental construction and secondary suites, and help non-profits acquire existing rental homes and keep them affordable.
“We are moving with purpose to help build more homes, faster. We are making life cost less,” Freeland said. “Millennial and Gen Z Canadians, we want them to look forward to the future with a sense of anticipation, not angst.”
The government also has committed to maintaining the already well-subscribed tax-free savings account, extending mortgage amortization terms and increasing the RRSP withdrawal limit for some first-home buyers, among other measures.
The housing program is a “home run,” said Armine Yalnizyan, a progressive economist and the Atkinson Fellow on the Future of Workers.
Yalnizyan said Conservative Leader Pierre Poilievre’s early focus on housing hurt the Liberals’ standing among some millennial voters.
Now, the Liberals are trying to reclaim some of those votes with an ambitious program which, if it’s carried out as planned, will meaningfully increase the country’s housing supply, she said.
“It’s really an attempt to stop the Conservatives from eating their lunch,” she said.
A tax hike on the rich
As Ottawa moves to remake the housing landscape, roll out a national dental care program and launch pharmacare, Freeland’s budget includes a number of targeted tax hikes that it says will yield some $21.9 billion in new revenue over the next five years.
The biggest windfall will come from an increase to the capital gains inclusion rate.
Under the current regime, only 50 per cent of capital gains are taxable. If a taxpayer sells an asset like a cottage, an investment property, a stock or mutual fund for $100,000 more than they paid, they are taxed only on $50,000 of that profit.
With this new budget, the “inclusion rate” will increase from one-half to two-thirds on capital gains above $250,000 per year for individuals, and on all capital gains realized by corporations and trusts.
The move is likely to be seen by business-friendly groups as an attack on the people and businesses that create jobs. The NDP — the government’s partner in the supply-and-confidence agreement — likely will welcome the change; party leader Jagmeet Singh has said the wealthy and big corporations should shoulder more of the country’s tax burden.
“We are asking the wealthiest Canadians to contribute a bit more, so that we can make investments to ensure a fair chance for every generation,” the budget document says. “Canada’s tax system can be more fair.”
The change will not apply to any capital gains from the sale of a primary residency. Investment income earned in an RRSP or TFSA, including capital gains, also will not be taxed.
According to government data, only 0.13 per cent of Canadians — people with an average income of about $1.4 million a year — are expected to pay more in personal income tax on their capital gains as a result of this change.
Jimmy Jean, an economist at Desjardins who tracks Ottawa’s spending, said the federal government’s goal of collecting about $19 billion from the capital gains measure may be difficult to achieve.
“The jury’s out on whether they can get that much,” Jean said.
“Targeting the income and wealth of the wealthy — it’s difficult because it’s more mobile, they can move it around. I’m skeptical.”
Other new revenue-generating measures in the budget include a promise to crack down on bankruptcy fraud and tackle “aggressive tax planning schemes.”
Other spending
Beyond housing, there’s also a promise to top up the incentives for zero-emission vehicles, deliver a new carbon tax rebate for small businesses, increase student grants, launch a $6 billion Canada Disability Benefit, create a $1 billion national school food program and deliver a $900-million top-up to the Indigenous infrastructure program.
CBC/Radio-Canada will get a one-off $42 million budget boost for news and entertainment programming and VIA Rail Canada stands to gain about $400 million over the next few years to turn the dream of high-frequency rail in central Canada into a reality.