Breaking down Budget 2024: Hits and misses from Canada’s economic roadmap

Budget 2024 dropped last week, and it has drawn in a range of opinions and reactions from Canadians.

Titled “Fairness for Every Generation,” it proposes over $52.9 billion in new spending.

This includes spending to “unlock” 3.87 million new homes by 2031 and “creating new opportunities for younger Canadians to get the education and skills they need for good-paying jobs.”

Daily Hive spoke with Tyler Thielmann, president and CEO of Canadian fintech, Spring Financial, to gain insight into which Canadians the budget helps and who it neglects.

Some hope for renters

The federal government concentrated much of its budget on housing and housing accessibility for renters.

It introduced the Canada Rental Protection Fund as a key measure with the goal of “protecting and expanding affordable housing.”

The fund aims to provide $1 billion in loans and $470 million in contributions to help affordable housing organizations acquire properties, preserve rent at stable levels, and prevent those units from being redeveloped into luxury condos.

The feds also proposed a Canadian Renters’ Bill of Rights to help young people trying to enter the housing market.

One of the main action items is to make credit bureaus take rent payments into account when calculating someone’s credit score. The goal is to help more Canadians qualify for a mortgage.

Thielmann said the credit score aspect was a “positive nugget” of the proposed policy.

“Everyone’s making some sort of monthly mortgage or rental payment. Unfortunately, right now, renters’ payments don’t go towards building their credit, so I think this is great for anyone middle class or new to Canada,” he noted.

Thielmann also highlighted another small but helpful inclusion of Budget 2024: the cap on non-sufficient fund (NSF) fees to $10 per instance.

The plan would also require banks to alert customers before being charged an NSF fee and provide a grace period to transfer funds to avoid paying the fee.

“NSF fees are a huge source of income to the big five banks, and often you’ll get charged $45 if a payment comes out short,” said Thielmann.

He noted that the cap on fees is a “practical and very helpful” solution that will make a small but important difference for Canadians.

Capital gains tax

A proposed higher capital gains tax for wealthy property-owning Canadians has also resulted in mixed reactions.

The changes come into effect on or after June 25 and will only impact Canadians making $250,000 in capital gains.

As an individual, your income taxes on capital gains will not increase if you are not part of the moneyed 0.13% of Canada’s population with an average income of $1.42 million.

“To make Canada’s system fairer, the inclusion rate — the portion of capital gains on which tax is paid — for capital gains for individuals with more than $250,000 in capital gains in a year will increase from one-half to two-thirds. Individuals will continue to only pay tax on 50% of any capital gains up to $250,000 per year,” the government said in a press release following the budget announcement.

Thielmann acknowledged that many entrepreneurs have raised concerns about the tax’s impact on Canada’s productivity problem.

“It’s just another stack on the pile of issues that, I think, are causing productivity issues. It’s not the only thing; it’s one of a thousand,” he noted.

But he also noted that it isn’t a helpful move to make entrepreneurs want to stay and grow their businesses in the country.

“I think something like this new tax is an additional weight… a lot of people are already going to the US, and this is just another reason to [go there] and start a business versus Canada.”

Some Canadians have voiced their views on the matter on social media, calling out the wealthy for criticizing the tax while most of the country is enduring a cost of living crisis.

To offset the impact of the capital gains tax on smaller businesses, the Government of Canada has also introduced the Canadian Entrepreneurs’ Incentive, which reduces the inclusion rate to 33.3% on a lifetime maximum of $2 million in eligible capital gains.

The feds say when this incentive is fully implemented, combined with the full capital gains exemption of $1.25 million, entrepreneurs could benefit from at least $3.25 million in total and partial lifetime capital gains exemptions.

Entrepreneurs with eligible capital gains of up to $6.25 million will be better off under these changes,” states the budget. “In practice, these numbers will likely be higher to reflect the inflation adjustment for the lifetime capital gains exemption and the ability to spread capital gains over multiple years.”

The incentive is available for founding investors in certain sectors who own at least 10% of shares in their business and where the company has been their principal employment for at least five years.

However, the fund excludes some industries, such as owners of professional corporations (e.g., doctors), financial, insurance, food and accommodation, arts, recreation, entertainment and personal care services firms.

“I believe the government created this because they knew there was going to be a backlash about the capital gains tax,” Thielmann said. “So this softens the blow a little bit.”

He said concerns remain for many medium business owners who may decide to sell their business and are not eligible for the Canadian Entrepreneurs’ Incentive.

In a recent statement, the Canadian Federation of Independent Business (CFIB) added that the capital gains changes have the potential to “demotivate Canadians from getting into business in the first place or working hard to grow a small business to a medium-sized business.”

Budget misses

While Canada endures tough economic times, Budget 2024 certainly doesn’t offer something for everyone.

Disability advocates called out the feds for only offering a $200 monthly disability benefit, while others felt the budget’s focus on helping young Canadians didn’t go far enough.

Thielmann is also skeptical about how much the budget can change the economic outlook for younger Canadians, especially regarding housing.

“I think the unfortunate truth is that it’s extremely difficult for young professionals in a big city to save up to buy a house. I think that’s the reality,” he said.

The full Budget 2024 document and summary can be found here.

With files from Isabelle Docto and Imaan Sheikh