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 punishing for Canadians in the months and years to come.
The ongoing COVID-related disruptions, the war in Ukraine and sharply higher and still-rising interest rates have scrambled the economic picture that Freeland laid out just a few months ago in her last fiscal update.
Canada is grappling with an affordability issue as the rate of inflation, now at its highest level in decades, pushes up the price of just about everything — especially housing.
The pandemic has exacerbated pre-existing problems in the housing market. Prices are so high in most markets that nine out of 10 aspiring home buyers surveyed in a recent poll said they’ve all but given up on the dream of owning a home.
Since the current Liberal government took office in 2015, the average price of a home in Canada has doubled to an eye-popping $816,720 — the highest average on record.
Elliot Hughes is a senior adviser at Summa Strategies and an ex-staffer to former finance minister Bill Morneau.
In an interview with CBC News, Hughes said he expects Freeland’s budget will be “a pretty focused, slim and strategic budget that will be quite targeted in the support it provides to specific sectors and policy areas.”
“It’ll be very, very focused, unlike previous budgets from this Liberal government,” Hughes said. “If there’s one theme that they would like Canadians to take away from this budget, it’s that the government is trying to help people on the housing question.”
With the Bank of Canada signaling that it will hike its overnight interest rate by 50 basis points next week to counter inflation — a move that will cause mortgage rates to move sharply higher — housing is going to become “just much more challenging and problematic for Canadians and it’s going to be a lot bigger challenge for the government,” Hughes said.
Government sources speaking to CBC News said the federal Liberals are attuned to the issue of affordability and Freeland’s budget will lay out a plan to offer relief to Canadians worried about the cost of living spiralling out of control.
The federal government, working with the provinces and territories, has started already to roll out national child care — a program that will save some parents thousands of dollars a year by immediately reducing the costs associated with daycare.
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Beyond that child care program, the budget is also expected to explain how the government intends to get more people into homes of their own. Government sources said they expect this budget will come to be known as the “housing budget” because so much of the document will be tailored to that issue.
“What is the single biggest expense you have? Where you live,” said a government source, who spoke on the condition of anonymity because they were not authorized to speak publicly.
“It will be a mix of short, medium and long-term stuff you can do that address the cost elements and also the sense that the system is working against [Canadians].”
Foreign buyer ban coming
Sources tell CBC News that the Liberal government will follow through on its promise to ban foreign buyers from purchasing non-recreational, residential property in Canada for the next two years — an attempt to stop foreign money from pushing prices higher than they are.
The Liberal housing platform from the last election offers some clues to what may be in Freeland’s second budget as finance minister.
During the campaign, the party promised to create a new tax-free home savings account, an investment vehicle to allow Canadians to save up to $40,000 and enjoy tax advantages on any investment gains.
The party also promised to double the first-time home buyers’ tax credit from $5,000 to $10,000, which will return about $1,500 to a home buyer at tax time to help offset the closing costs associated with a purchase.
A problem of short supply and heavy demand
The Liberals pitched a plan to offset monthly mortgage costs by reducing the insurance premiums charged by the Canada Mortgage and Housing Corporation (CMHC) on some loans. They also said they would make the First-Time Home Buyers’ Incentive — a shared-equity mortgage program which sees the government provide some funds for a down payment in return for a stake in the home — more flexible.
But Kevin Lee, the CEO of the Canadian Home Builders’ Association, said the government can’t be focused on these sorts of incentives alone. He said home 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 of something, prices go up and that’s what we’re seeing,” he told CBC News.
Lee said Canada has far fewer housing units per person than other developed countries. In fact, recent estimates suggest Canada is about 1.8 million homes short of the G7 average.
Over the past 20 years, Canada has built around 200,000 new housing units per year. At the current rate, it would take years of steady construction just to bring Canada’s housing stock up to the levels seen in other Western countries.
The housing accelerator fund
Lee said Canada needs to supercharge construction and consistently repeat the record-breaking year home builders enjoyed in 2021, when they churned out more than 270,000 new units — a construction pace not seen in five decades.
Lee said the housing crunch “is really the number one issue that we have right now as a country.” He suggested a possible fix in the “housing accelerator fund” the Liberal Party pitched in the last election campaign.
The party’s platform said the government would earmark some $4 billion for municipalities that “grow housing supply faster than their historical average” — part of a plan to build 100,000 new middle-class homes in Canada’s cities by 2024-25. That money could be used as an incentive to encourage municipalities to make home construction easier.
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“We need solutions and we’re hoping that the budget will follow through on this commitment,” Lee said. “We need that $4 billion really targeted at municipalities to help them unlock the door to supply — that’s the key.
“We need increased densification, we need to speed up approval times, we need to cut through some of the red tape and streamline systems. We’ll have to see how they structure that program.”
A return to more ‘normal’ spending?
In addition to a laser-focus on housing, government sources say the budget will also detail some other priorities. They include a promised increase to Canada’s national defence budget — a source says funding will be directed at modernizing the North American Aerospace Defense Command (NORAD) — and new details on a tax incentive to jump-start the use of carbon capture, utilization and storage (CCUS) to help offset greenhouse gas emissions associated with fossil fuels.
Hughes said he thinks the Liberal government will also show that it is ready to return to more “normal” spending levels after years of running massive budget deficits as the country dealt with the worst of the pandemic.
With much of corporate Canada jittery about the country’s mounting debtload, Hughes said he thinks Freeland will produce a budget that will show Canada’s debt-to-GDP ratio — the government’s preferred “fiscal anchor” — on a steady decline in the years to come.
“If we do see a fiscally restrained budget — and I use the term ‘restrained’ loosely when it comes to this government — I think that will come down to Minister Freeland, that will be her imprint on this. She’ll be putting her foot down with the prime minister and other ministers when it comes to spending,” Hughes said.