Federal Budget Analysis 2024
Can Red Ink Stop a Blue Tide From Rising?
Yesterday was budget day in Ottawa, the final day of a budget season in which new episodes streamed weekly. Last year’s budget star was the Government’s climate change measures. But Steven Guilbeault has been muted and climate change, the political issue, has been momentarily archived. This year’s pre-announcements were all about affordability, including commitments on housing and school lunches that will need provincial buy-in, a promise to bump-up support for the Canadian Forces, money for mental health, and billions for artificial intelligence. Taxes on the wealthy and corporations will rise but will Liberal support rise too? Polls show that an increasing number of Canadians are concerned that the Liberals are spending too much, and billions in new announcements won’t help. Critics note that interest to service the debt is now north of $50 billion a year and even outstrips transfers for healthcare. The Prime Minister and his party are running out of time. At most the next federal election is just eighteen months away.
The Liberals are desperate to change the channel on their own focus on climate. Polling shows that the CPC is now 20 points ahead of the Liberals. Public support for the consumer carbon tax has fallen through the floor. House prices are still hot and rising. Millions of new homes must be built to meet demand. The Liberals are under fire over high immigration levels. Economists worry that Canadian living standards are in trouble. The public is worried. There is even talk that the Conservative Party has a once in a lifetime shot at winning Toronto-St. Paul’s by-election, a staunchly Liberal seat. That’s unlikely, but when voters are in a bad mood a by-election is a good club to use to beat a government.
The problem with any budget is that most budget measures are decided months before, but they are judged against the unknowable pressures of the present moment. It’s difficult to recall a present moment more freighted with danger, fear, anger, and sorrow than this one. Israel-Iran-Gaza, Russia-Ukraine, China-Taiwan, world-wide inflation and affordability concerns, climate change, the pending US election, and deeply divided public opinion everywhere are a mind-focusing partial list of challenges that keep planners, presidents, and prime ministers up and pacing their bedroom floor at night. Is Budget 2024 up to the task of preparing Canada to handle those challenges? Not according to a host of critics.
Looking to hit a housing home run
Down in the bottom of the 7th inning, the Liberals are swinging for the fence on housing, perhaps the biggest economic challenge in Canada in a generation. Their game plan, Solving the Housing Crisis: Canada's Housing Plan, is designed to ensure Canadian spend no more than 30% of their income on housing. Budget 2024 commits $8.52 billion to tackle housing demand, increase affordability, and to spark the building of four million homes by 2031.
Renters will also see the introduction of the Canadian Renters' Bill of Rights and a $15 million Tenant Protection Fund. They top-up the Apartment Construction Loan Program (aka Canada Builds) by $15 billion with over $1 billion in loans and $470 million for a new rental protection fund to protect against rent increases. A $6 billion Canada Housing Infrastructure Fund (topping up the Housing Accelerator Fund by $400 million) will help growing communities address housing demand. Another $600 million has been allocated to innovation in scaling up modular and prefabricated homes. First time home buyers will be able to access 30-year mortgage amortizations and borrow more from their RRSP for a downpayment. A new Secondary Suite Loan Program will allow homeowners to access up to $40,000 in low-interest loans to add secondary suites.
The housing initiatives in Budget 2024 and the appointment of the well-regarded Sean Fraser as housing minister are a solid attempt by the Liberals to try to recapture leadership of the file from Pierre Poilievre and the Conservatives, but it may have come too late. Bureaucracies move slowly, house prices are still rising, mortgage rates are still high, new houses take at least a year to build, and Pierre Poilievre can be counted on to leap all over the Liberal plan.
Canada’s slow response to the Inflation Reduction Act continues its snail's pace
When they have a mind to, the US Congress can move quickly. In August of 2022, the US House and Senate passed the Inflation Reduction Act (IRA), representing the largest investment into addressing climate change in United States history. It would entice investment in clean technology through rich incentives. Four days later, it was signed by President Biden and became effective in law. It’s 2024 and Canada is still working to respond.
Beginning in the 2022 Fall Economic Statement, Deputy Prime Minister Freeland committed to introducing a series of investment tax credits (ITCs) as a response to the IRA. They were supposed to encourage investment in clean energy and technology projects and to decarbonize the Canadian economy. After lengthy consultations, it appears as though these credits have finally moved from concept to implementation, with the government promising in Budget 2024 that the lion’s share would be available retroactively to January 2024 or before. Here’s the score on each of the six ITCs the government is touting:
Carbon Capture, Utilization, and Storage
Effective Date: January 1, 2022
Implementation Timing: Dependent on the passage of Bill C-59 (anticipated this spring)
Clean Technology
Effective Date: March 28, 2023
Implementation Timing: Dependent on the passage of Bill C-59 (anticipated this spring)
Clean Hydrogen
Effective Date: March 28, 2023
Implementation Timing: Dependent on the passage of legislation the government intends to introduce this session
Clean Technology Manufacturing
Effective Date: January 1, 2024
Implementation Timing: Dependent on the passage of legislation the government intends to introduce this session
Clean Electricity
Effective Date: Budget Day 2024
Implementation Timing: Dependent on the passage of legislation the government intends to introduce in fall 2024. Draft legislation is expected for this spring.
EV Supply Chain
Effective Date: January 1, 2024
Implementation Timing: Dependent on the passage of legislation the government intends to introduce in mid-2025
Carbon Contracts for Difference (CCFDs), protect clean tech projects with longer timelines by guaranteeing a floor price for the carbon credits projects are expected to generate. The Canada Growth Fund has allocated $6 billion to issue CCFDs, and the Government of Canada has committed to working with the agency to develop new CCFD offerings, to refine their mechanisms, and to align them with provincial carbon credit markets.
CCFDs were developed at the request of industry to help companies meet government sustainability targets and the sustainability standards established by bankers and investors around the world. The Conservative Party has yet to take a position on CCFDs.
Help Wanted!
Budget 2024 notes the imminent retirement of baby boomers and emphasizes the need to equip Gen Z with opportunities for skill-building and meaningful employment. The Budget allocates $351.2 million to the Youth Employment and Skills Strategy to bring young people into the labour market.
The Budget also commits to streamline credentialing for newcomers who possess high-demand skills through the Foreign Credential Recognition Program. Another $50 million over two years will go to skills development in construction and health. Budget 2024 also proposes to knock down provincial and territorial labour barriers for the trades, and to improve labour mobility.
Canada needs newcomers to help us address labour shortages, but not before have a plan to ensure they are adequately housed.
Balancing immigration, the economy, and housing
In January the government announced they would lower the number of temporary residents coming to Canada in a bid to lower the demand for housing. They also capped the number of study permits for international students, impacting both public and private colleges and universities.
Budget 2024 provides $1.1 billion over three years to extend the Interim Housing Assistance Program. Addressing the needs of asylum seekers has been a point of contention between the federal government and the provincial and municipal governments who provide many of the services, especially in large cities like Toronto.
Gritting it out to win over the Dippers
If the NDP had their way, they would like you to know that Budget 2024 would be very different. There would be more taxes on the wealthy and on their gas guzzlers, and especially on those grocery store barons. Instead, the NDP have opted to comfortably settle into their third year of the confidence-and-supply agreement – while extracting wins on protections for tenants and coverage for birth control and insulin. NDP leader Jagmeet Singh criticized the government’s lack of ambition on targeting corporate Canada, but the Budget’s focus on “fairness” for those under age 40 should keep the NDP mostly onside until fall 2025.
State of the Green Agenda
Climate change is a loser in Budget 2024, not garnering a mention until page 24, but the climate is far from completely forgotten. Budget 2024 allocates $800 million over five years to new energy-efficient equipment for lower-income households (The Liberals’ first green homes program was criticized for subsidizing the wealthy). The much-maligned carbon tax continues its makeover, with the government giving itself the power to force banks to label federal rebates with a snappy title. There’s also $11 million for this year and for the election year on an Environment Canada marketing campaign to make sure Canadians hear the good news on the federal climate plan. Small businesses get attention, too: Ottawa will pay back $2.5 billion in carbon taxes collected from firms with fewer than 500 employees between 2019 and 2024. Clearly, the Conservative "axe the tax” message has had its intended effect of putting the government on the defensive for a policy that passed muster in three previous elections.
The most politically expedient tax increase
Much has been made about what tax increase the Liberals would introduce in 2024. If you’re going to pick one, it’s probably a good idea to chose the one most Canadians have never heard of. Budget 2024 announced the capital gains inclusion rate will be made progressive, staying at 50 percent for any gain below $250,000 and increasing to 66.67 percent thereafter. The change is expected to net nearly $20 billion for federal coffers over the next five years. The budget notes that the measure will target the wealthiest 0.13 percent of Canadians and about one-in-eight corporations, a direct appeal to NDP-minded voters. To keep the commoners happy, there are also measures on curbing junk fees, enhancing airline fare pricing, interoperability requirements for farming equipment and caps on NSF fees.
Message discipline from Pierre
Hours before the 2024 Federal Budget was even released, Conservative Party leader Pierre Poilievre did not mince words on expectations. Standing with his well-polling caucus behind him and brandishing a bold podium with his party's tagline, "Fix the Budget," Poilievre pre-emptively lambasted the Trudeau Government’s financial management and what he proposes as a “common sense” solution.
When Poilievre’s opportunity finally came to speak to the $39.2 billion net-new spend, the top Tory again likened the Prime Minister to a "pyromaniac" claiming to extinguish the fire he started, capturing the essence of the Conservatives’ critique: a government exacerbating the economic crisis it claims to be resolving. Deputy Prime Minister Chrystia Freeland defended the budget's ambitions, as the Prime Minister nodded along, framing it as necessary for building essential infrastructure and asking the wealthiest to pay fair shares for the betterment of the country. The Liberals wondered, did the Opposition really want to stand with the richest 0.1%?
Poilievre quickly dismissed that unflattering innuendo, shifting to his party’s counterproposal of a "common sense" plan that emphasizes tax reductions, increased housing supply by incentivizing municipalities, and fiscal discipline through a dollar-for-dollar plan to curb government spending. The series continues.
What did the unruly provinces have to say?
Ontario’s Finance Minister, Peter Bethlenfalvy, responded to the 2024 federal budget with mixed reviews. He criticized the continued imposition of the federal carbon tax for exacerbating the cost of living, while acknowledging positive steps like increased funding for housing infrastructure and the recognition for the need to invest in the electric vehicle supply chain. Bethlenfalvy emphasized the need for the federal government to align with Ontario's efforts in rebuilding the economy without imposing new taxes and took no shame in plugging Ontario's "Building a Better Ontario" budget.
Satisfied with Pierre Poilievre’s fiery metaphor, Alberta's Finance Minister, Nate Horner, hosed the federal government's 2024 budget, accusing it of "pouring gasoline on the inflation crisis" in Canada. He criticized the budget for overtaxing, overspending, and heavy regulation, which he argued would smother economic growth and increase the cost of living for Canadians. Highlighting a sharp increase in the carbon tax, Horner warned that such measures would leave nothing but higher living costs and fan the flames of the national affordability crisis without any strategic foresight.
Navigating the seas ahead
We will need to wait a while to know if the Liberal’s 2024 budget can help calm the dark blue political waves crashing over the Liberal ship of state. For now the seas are choppy and the future is as chaotic and unknowable as it’s ever been, but we’ve been through the storms before and we stand by ready to assist.