Budget 2022 unveils billions in 'targeted' new spending, deficit projected at $52.8B
Budget 2022 unveils billions in 'targeted' new spending, deficit projected at $52.8B
Budget 2022 unveils billions in 'targeted' new spending, deficit projected at $52.8B
In the 2022 federal budget, the government is unveiling tens of billions in new spending over the next five years, aimed at “targeted” initiatives to build the economy, while continuing to chip away at the deficit.
From addressing housing affordability, to shoring up the Canadian military in the face of global instability due to Russia’s war in Ukraine, and making good on progressive policy commitments helping to keep them in power, Thursday’s federal budget from Deputy Prime Minister and Finance Minister Chrystia Freeland outlines how the federal Liberals propose to steer the Canadian economy through persistent inflation, while moving away from pandemic-era massive stimulus spending.
The budget proposes $9.5 billion in new spending for the 2022-23 fiscal year—with the biggest ticket items focused on housing supply, Indigenous reconciliation, addressing climate change, and national defence—while also set to take in more than $2 billion in revenue-generating efforts.
The total new spending outlined in the 2022 federal budget adds up to approximately $60 billion, though the net new spending works out to roughly half of that, after factoring in plans to rake in tens of billions in new revenue by targeting banks and other profiteers to help pay down Canada’s debt.
The budget— titled “A Plan to Grow Our Economy and Make Life More Affordable”— shows that the federal deficit is projected to sit at $113.8 billion for fiscal year 2021-22, down from the $144.5B estimated in the latest fiscal update.
In the current fiscal year and years following, the deficit is also down from past projections and is set to keep reducing, with the 2022-23 deficit estimated at $52.8 billion, and declining each year following, to $8.4 billion by 2026-27.
The government attributes Canada “roaring back” from the pandemic—citing real GDP returning to pre-pandemic levels ahead of schedule and the jobs recovery rebound— as well as heightened government revenues as helping bring the budget closer to balance than anticipated, while still pursuing billions in new spending.
"This budget invests heavily in economic growth," Freeland said during a press conference under embargo as part of the budget lockup before tabling the nearly 300 page document in the House of Commons. “This is a three-part growth plan: It's a suite of investments in people that will drive growth, with housing as the centerpiece of that investment. It is investments in the green transition, which we all know is essential... And the third element is an investment in productivity.”
Framing budget 2022 as a “fiscally responsible approach to economic growth,” the Liberals say their priority remains building an economy “that works for everyone.”
“This is a budget that is first and foremost about continuing to have Canadians’ backs. We've demonstrated through the pandemic that one of the best ways to make sure our economy comes back strong, is by investing in the right things for Canadians to grow the economy… and it's done in a fiscally responsible framework,” said Prime Minister Justin Trudeau on his way into the chamber for Freeland’s budget speech.
Conference Board of Canada Chief Economist Pedro Antunes told CTV News that comparing to pre-pandemic times, it’s still a “fairly big spending budget,” but that the spending is being made possible because of the relatively improved financial situation and the coming new revenue measures.
“The fiscal situation in terms of revenues and expenses is improved from what we had in the economic update. And this is largely because we’ve had an inflationary shock, and that’s driven up revenues overall, that’s driven up commodity prices, which helps the federal government. And we’ve had a very rapid improvement in the economy overall… so that’s lowered some expenses for the government,” said Antunes.
In the minority Parliament, opposition parties were quick to react, with the federal Conservatives framing it as an “irresponsible” fiscal plan that they can’t support, while the Liberal’s ally and key partner the NDP say the package is enough to keep their support, touting the budget’s measures aimed at helping people as a direct result of their influence.
HOUSING AFFORDABILITY, TARGETING FLIPPERS
As Canadians face a cost of living crunch, tackling housing affordability is a main feature of Thursday’s federal budget. The Liberals are looking to make policy decisions that are aimed at countering the housing crunch, the lack of inventory, and the skyrocketing prices.
Framing it as “perhaps the most ambitious plan that Canada has ever had” to solve the housing crisis, the federal government is set to spend nearly $10 billion over the next five years on the overall housing package.
One key new policy is moving to make it illegal for foreigners to buy any residential properties in Canada for the next two years. In shutting foreign buyers out of the market for the next two years, with the ability to level penalties, the government says it wants to make sure houses are being used as homes rather than as investment commodities.
The foreign buyers ban will apply to condos, apartments, and single residential units. Permanent residents, foreign workers, and students will be excluded from this new measure. Foreigners who are purchasing their primary residence here in Canada will be exempt.
Other housing initiatives in the 2022 budget include:
$4 billion to launch a new “Housing Accelerator Fund” that meets an NDP-Liberal deal requirement, and looks to help municipalities update their zoning and permit systems to allow for speedier construction of residential properties by cutting red tape and building other digitized systems. Through this, the government is targeting the creation of 100,000 net new housing units in the next five years;
$1.5 billion to extend the rapid housing initiative, to create at least 6,000 new affordable housing units, another NDP-Liberal deal demand;
$1.5 billion in loans and funding for co-op housing being reallocated from other initiatives;
$750 million to roll out a tax-free savings account for first-time buyers that will allow first-time homebuyers to save up to $40,000 towards their first home. With the aim of shortening the time it’ll take to afford a down payment, first-time home buyers would be able to withdraw this money tax-free to put towards their first home purchase.
The Liberals are also targeting home flippers, introducing new rules to ensure that as of January 2023, if any person sells a property they have held for less than 12 months would be considered to be flipping it and subject to full tax on their profits as business income. Exceptions would apply for “certain life circumstances” such as death, the birth of a child, or divorce.
It remains unclear precisely how many housing units will be created under these spending measures in the coming years, but the government says all told they will put Canada on a path towards doubling the construction of new homes in the next decade.
Under the housing chapter the Liberals are also targeting rental unity affordability and efficiency, Indigenous housing efforts, and will be setting up a “Multigenerational Home Renovation Tax Credit,” which would provide up to $7,500 to help cover the cost of building a secondary suite for a senior or an adult with a disability.
In her budget forward, Freeland cautioned that “there is no silver bullet,” that will immediately solve the situation and guarantee Canadians can buy homes in the communities they want to.
INCREASING DEFENCE, UKRAINE, CYBER SPENDING
Responding to the Russian attacks in Ukraine has become a key piece of the 2022 federal budget, seeing the government unveil $8 billion in new funding to reinforce Canada’s national defence, alongside a coming review of Canada’s defence policy.
The new spending is aimed at better equipping the Canadian Armed Forces, strengthening Canada’s contributions to NATO and NORAD, and reinforcing Canada’s cybersecurity, the government says.
Included in the new funding is $6.1 billion over five years for a loosely-defined set of initiatives meant to reinforce defence priorities including continental defences, commitments to allies, and for new equipment and technology to bolster the Canadian Armed Forces’ capabilities.
The 2022 budget’s defence chapter also sets aside:
$100.5 million over six years to “strengthen leadership in the Canadian Armed Forces.” This includes money to modernize the military justice system, set up the Declaration of Victims Rights, and overall continue working on bringing about culture change; and
$875.2 million over five years “to address the rapidly evolving cyber threat landscape.
In addition to considering domestic defence readiness, the government is pledging “up to” $1 billion in new loans to the Ukrainian government through a new “Administered Account for Ukraine at the International Monetary Fund (IMF).”
Canada is also offering an additional $500 million in military aid to Ukraine, on top of the pre-announced $111 million for the special immigration streams for fleeing Ukrainians.
This military spending increase is unlikely to satisfy those pushing Canada to fulfill their NATO commitment to spend two per cent of its gross domestic product (GDP) on defence.
In order to reach two per cent—Canada spent 1.36 per cent of its GDP last year according to the latest figures—the Parliamentary Budget Officer has estimated the government would have had to set aside between $20 to $25 billion per year.
Still, Freeland is touting the package as providing Canada the “fiscal and physical firepower we need to meet any threats that may confront us.”
Interim Conservative Leader Candice Bergen said while she was pleased to see defence spending prioritized, she’s saving her praise for when, and if, the funding actually makes it out the door.
“We already have a government that has announced about $10 billion in defense spending, that they actually haven't spent… We're going to be looking for where they're going to be spending it and that they'll actually get that money out,” said Bergen.
DENTAL AND HEALTH CARE, RECONCILIATION
After major new spending over the last few years in health-focused initiatives given the pandemic, the 2022 budget has less of a health-care focus, though in fulfilling one of the core pledges of the Liberal-NDP deal, the federal budget includes the first phase of a national dental care program.
Earmarking $5.3 billion over five years and then $1.7 billion ongoing to Health Canada, the program will offer dental care to families with an income of less than $90,000 annually, with no co-pays for those under $70,000 annually in income.
The first phase coming in 2022 will offer dental care to children under the age of 12, with a budgeted cost of $300 million. The overall expenditure will increase in the years following as the government expands eligibility.
Researching the long-term impacts of COVID-19, increasing loan forgiveness for doctors and nurses in rural communities, mental health supports, and addressing the opioid crisis are also areas getting new funding measures in this budget.
The 2022 federal budget includes an overall total of $10.6 billion for a series of initiatives for Indigenous communities, including $4 billion to uphold Jordan’s Principal, $4 billion for housing in Indigenous communities, and $275 million to address the legacy of residential schools.
Singh said that while he still has his concerns about certain elements of the federal spending plan, including lacking health-care investments, overall, “we forced the government to deliver and we use our power to get people this help.”
“The budget reflects the priorities that we laid out, and the agreement that we have, and so it honours that agreement, and it has really important things that are going to make a big difference in people's lives,” said Singh.
STEPS TO CREATE JOBS, CLEAN THE ENVIRONMENT
The federal budget includes two new funds tailored towards growth, and new measures to spur Canada’s efforts to address climate change.
The budget unveils a new $15 billion “Canada Growth Fund” meant to attract billions of dollars in private investment “to help meet important national economic policy goals,” as well as emission-reduction and climate goals. The government says it will be targeting three dollars of private capital for every dollar invested
There is also plans for a $1 billion new agency focused on innovation and investment, potentially modelled after agencies that have been successful in Israel and Finland, would “proactively work with new and established Canadian industries and businesses to help them make the investments they need.”
Other notable environmental and job elements of the budget include:
$3 billion to make zero-emission vehicles more affordable including setting up a network of charging stations;
$3.8 billion to implement Canada’s first critical minerals strategy to tap into Canada’s supply; and
Promising to phase out the small business tax rate more gradually, estimated to save employers $660 million in taxes over the next five years.
While childcare was a marquee focus of the 2021 budget, now with deals signed across the country, the main new element of this plan in the 2022 document is the allocation of $625 million over four years starting in 2023-24 to create an “Early Learning and Child Care Infrastructure Fund,” to in part help provinces build new facilities.
There is also mention in the budget of easing skilled immigration, and making it more affordable to move to where the jobs are in this country.
Reacting to the budget, interim Green Party Leader Amita Kuttner said that while there are redeemable social policy elements of the budget, overall “for a budget that promises to be transformative, I could not call it such a thing, especially because there seems to be a focus on people having value based on their productivity, instead of a focus on wellbeing, which is what we firmly believe is necessary for any transformative policy and budget.”
On climate, Kuttner called the budget’s measures “a huge disappointment,” with not enough done to make up for this week’s federal signoff on the controversial new Bay du Nord oil project.
NEW TAXES, FISCAL ANCHOR
To offset some of the spending, the 2022 federal budget includes new ways the government is looking to generate billions in new revenue in a few ways, including by cracking down on tax avoidance and forcing the big banks and insurance companies to “help pay for the recovery.”
As CTV News first reported, the federal budget includes plans to make the big chartered banks and major insurance companies share their pandemic-generated wealth by increasing their corporate income taxes.
The Liberals are taking a two-pronged approach to this, diverging from their 2021 election platform proposition and taking a more aggressive tact that will see the government net $6.1 billion over five years, and hundreds of millions in the years following.
Wealthy financial institutions are being squeezed in two ways:
A one-time 15 per cent tax will be imposed on taxable income above $1 billion that was earned by banking and life insurers’ groups in the 2021 tax year. Called the “Canada Recovery Dividend,” the increase will be paid in equal installments over the next five years; and
Going forward the government will permanently increase the corporate income tax rate by 1.5 per cent on the taxable income of banks and insurance firms that is above $100 million, seeing their overall federal corporate income tax rate increase from 15 per cent to 16.5 per cent.
The budget also puts high earners on notice that the government thinks some high-income Canadians aren’t paying enough in personal income tax and so the Liberals say they will be examining “a new minimum tax regime, which will go further towards ensuring that all wealthy Canadians pay their fair share.”
In addition to the new announcements, the massive economic document also offers an updated full picture of the state of the country’s finances. Canada’s debt as a percentage of the GDP is projected at 45.1 per cent in 2022-23
After declining from its pandemic peak, the unemployment rate is forecast at 5.8 per cent in 2022, but then looks set to stall out in the mid-term at 5.5 per cent.
“When we look everywhere in Canada the labour market is extremely tight, and I think essentially restraining our economic activity,” said Antunes.
Former parliamentary budget officer and current president of the University of Ottawa’s Institute of Fiscal Studies and Democracy Kevin Page told CTV News that he thinks it’s a “modest budget,” attempting to demonstrate fiscal responsibility, but that there’s “an enormous amount of uncertainty around these numbers.”
While balancing the books and eliminating the deficit is still not forecast to happen in the next five years, the Liberals continue to hold on to Canada’s debt-to-GDP ratio as the key fiscal guardrail, while presenting alternate “heightened” and “moderate” economic impact scenarios.
The government says in the budget they are “absolutely determined” that Canada’s debt-to-GDP ratio must keep declining, and while inflation is providing some padding to the government’s balance sheet, the “extraordinary debts” incurred during the COVID-19 pandemic “must be paid down.”
Freeland told reporters on Thursday that while this budget starts to make a reality some of their campaign commitments, it’s only their first of their expected four budgets before the next election and so “you are not going to see every single thing we have an ambition to do in the first budget… We will do more things.”
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