Please answer this quick question about debt and interest payments: Debt Survey

Highlights from Budget 2024

Here are some details from the government’s 2024 Budget. It is labelled as Fairness for all Generations, but it is anything but fair for the under-40 generations who will inherit massive debt, the interest payments on that debt, rising taxes to pay the principal and interest, along with inflated costs for basics like housing, fuel and groceries. It is anything but fair to the next generations of Canadians – your kids and grandkids, and mine.


Core Metrics

$61.2 billion: in NEW, unplanned inflationary spending over five years (number as calculated by the independent Parliamentary Budget Officer).
$534.6 billion: in total spending this year.
$39.8 billion: the deficit to be added to our national debt this year.
$1.255 trillion: Canada’s current national debt. When this government was elected in 2015, the debt was $649 billion. Trudeau governments have added more to the national debt than every Prime Minister before him since Confederation, added together.
$54.1 billion: interest on that national debt, up from $46 billion last year – more than the health care envelope which is $52.1 billion.
$338.4 billion: interest over the next six years. All of this money will go to banks and bondholders, not for health care, social supports, tax relief, or other priorities. The chart below shows the government’s own predictions of the money to be spent just on the interest (not including any paydown of principal):

The amount being spent every year on interest charges on the debt is shocking, and is only projected to grow. In 2015, when elected, Justin Trudeau said there would be a couple of years of small deficits ($10 billion he said) and then the budget would balance itself. Not only is the annual deficit considerably larger than $10 billion – and not balanced nine years later – but the forward projections show no signs of balance in the next six years. We cannot live on borrowed money forever.


My Speech in Parliament on Key Issues in the Budget

For further commentary on the speech.


The Big Picture: Eating Up All of the Available Fiscal Buffer

The government announced $52.9 billion in new, unplanned inflationary spending in the Budget. That’s bad enough, but the Parliamentary Budget Officer has now crunched the numbers and – surprise – the number is actually $61.2 billion!

Excerpt from PBO report: “Budget 2024 marks the third consecutive fiscal plan in which the Government’s new measures—even after accounting for revenue-raising and spending reviews—have exceeded the incremental “fiscal room” resulting from economic and fiscal developments. Indeed, the $39.3 billion in (net) new measures announced in Budget 2024 more than exhaust the $29.1 billion in new fiscal room over 2023-24 to 2028-29.”

This government is out of control and is leaving an insurmountable mountain of debt to the next government, with no wiggle room to pay for unforeseen crises (wars, pandemics, droughts) in future years.

Read the PBO Report:


Data Manipulation to Distort the Real Situation

I noticed that the government’s numbers are being manipulated. I rose in the House to ask why the government manipulates data and statistics to make our country’s finances look better than they are. In particular – they include pension holdings of the CPP and QPP as “assets” when they are not. Those funds are held in trust for Canadians. The government is not free to use those funds against their liabilities or to use them as collateral to support their excess spending and borrowing. Categorizing pension funds as assets distorts the metrics used by the government to grade their own performance.


New Spending

The government is proposing $53 billion in new, unplanned spending over five years. There is a long list of new spending (200 separate line items). Here are some highlights:

  • $13 billion over five years is the estimated cost of the new dental plan, which is now available to seniors age 70 and over and will expand in coming months to cover about one-quarter (9 million) of Canadians who lack a private/company plan.
  • $8.5 billion for housing, although announced programs already add up to much more than that (the government believes they will collect some of it back over time)
  • A maximum increase of $200 per month for Canadians aged 18 to 64 with a certified disability. While this will add $6 billion to the budget over six years, it is not enough to make a material difference to individuals, and it doesn’t start until July 2025. The ongoing cost after six years is estimated at $1.4 billion per year, assuming the monthly rate doesn’t increase.
  • $2.6 billion for what the government calls “generational fairness” initiatives to ease education costs and create new job opportunities for younger Canadians.
  • $1.5 billion over five years for pay for universal coverage of contraceptives and diabetes medicine and supplies. This does not account for new funds required assuming the “pharmacare” initiative expands to include other medicines in coming years.
  • Small businesses pay 40% of the carbon tax but receive no rebates (contrary to promises made when the tax was introduced). The budget proposes to return fuel charge proceeds from 2019-20 through 2023-24 to an estimated 600,000 businesses with 499 or fewer employees through a new refundable tax credit. The government said this would deliver $2.5 billion directly to Canada’s small- and medium-sized businesses.
  • $8.1 billion for the defence budget over the next five years. Assuming the money is actually spent (it isn’t always due to procurement inefficiencies and changing priorities), Canada’s commitment to defence spending would rise to 1.76% of GDP from 1.33% today – still short of our NATO commitment of 2% of GDP, which most other NATO nations have reached or almost reached.
  • A top-up of $42 million to CBC’s annual stipend of $1.3 billion.
  • $1 billion over five years for a new school food program, to expand access to some 400,000 students
  • $1 billion for the new Child Care Expansion Loan Program, to provide loans and grants to build or renovate child-care centres,
  • The Canadian Security Intelligence Service will receive $655.7 million over eight years, starting this year, to enhance its intelligence capabilities and its presence in Toronto.
  • Up to $5 billion in loan guarantees for Indigenous communities to participate in natural resource development and energy projects in their territories (that means the loans come from traditional lenders but the government backstops them to allow for lower interest rates).

How will the government pay for all this spending?

Taxes will go up:

  1. Increased taxes on tobacco and vaping products. Effective immediately, the total tobacco excise duty will rise to $5.49 per carton, estimated to increase revenue by $1.36 billion over five years starting in 2024-25. The vaping excise duty rates will rise by 12% effective July 1. That is an increase of 12 to 24 cents per pod, depending on where you live. 
  2. Increased taxes on beer, wine and spirits. This is an automatic increase every April 1st, although the government sets the annual rate, and this year it rose by 2%.
  3. An increase in the capital gains inclusion rate from 50% to 67%. For companies and professional corporations (such as doctors or other professionals), all of their capital gains will be taxed at the higher rate. For individuals, capital gains over $250,000 in a year will be taxed at the higher rate. Capital gains accrue when you sell something at a higher value than you purchased it for – examples of capital gains include sale of a cottage or second residence, sale of a property used for rental income, or sale of investments that have gained in value. Sale of your principal residence is not taxed as a capital gain. The government estimates this measure will bring in $19.4 billion over five years, but analysts are skeptical because many people who are able to do so will simply re-arrange their affairs to avoid the tax.
  4. There are also less obvious taxes. For example, the GST is charged on your carbon tax payments, so while most of the carbon tax revenue is used for rebates, programs or administration, the government keeps the extra GST. As inflation rises, the GST revenues also rise because GST is charged on the cost of the items you purchase.
  5. The government also claims it will realize $29 billion over six years in new revenues from improved economic performance. That estimate is highly speculative, especially given Canada’s current poor performance on productivity and investment.
  6. Although not yet confirmed, the budget contemplates a tax on vacant land zoned for homebuilding.

Borrowing will increase:

The most significant source of new funds will be borrowing. The government will borrow another $40 billion this year, adding it to the national debt and bringing that debt to $1.255 trillion dollars. The budget does not forecast any future year in which the government will balance the budget and stop borrowing to pay for annual operating expenses. Their projections assume no significant new spending in upcoming years, which feels a little hard to believe given all of the costly new programs on their wish lists.


Housing

The central theme of the budget is the housing crisis. The Liberals have been promising action on homes since they ran for office in 2015. Almost a decade later, they are making the same promises because no progress has been made. In fact, the crisis is worse.

Under this government, rents, mortgage payments and housing prices have all doubled. PM Trudeau has made our cities among the most expensive in the world.

On May 2, the Canadian Mortgage and Housing Corporation (CMHC) confirmed that housing construction will plummet as prices get more expensive. Under this Liberal government, housing starts will be lower in 2025-26 than they were in 2020-21. On top of this, the CMHC forecasted that “rents will rise and vacancy rates will fall,” as more people compete for less housing.

This follows a report from RBC last month which stated that Canada needs to build 320,000 homes every year just to ensure that housing doesn’t get any more expensive. But in 2023, Canada only managed 240,000 housing unit starts, down from roughly 271,000 in 2021. CMHC is forecasting housing starts to fall again this year by another 6.6%. The government’s recent Budget promised 3.87 million new homes by 2031, but that would mean construction of 483,750 homes per year – well above any marker we have yet to approach.

Conservatives have a different plan than this government’s hodge-podge of costly and bureaucratic programs, initiatives, policies, loans and grants. We will build homes, not bureaucracies, by linking federal infrastructure money to housing completions and letting builders get on with what they do best – building.

The Parliamentary Budget Officer calculates that Canada will need 3.1 million new homes by 2030, or an average of 436,000 units per year compared to the average 250,000 currently being built. The government is promising 3.87 million by 2031, or 483,750 per year. Not only is it unrealistic to double the homes being built, but there are also several obstacles the government has put in the way:

  1. Several budget initiatives will actually increase demand and thus worsen the supply shortage. Canada’s generous levels of immigration – both permanent and temporary – also increase demand, although we do need more skilled workers.
  2. While many plans are announced, the money often doesn’t go out the door. As an example, the First Time Home Buyer Incentive (which gave the government an equity share in your home in return for a 5% or 10% contribution to your down payment) was recently abandoned due to its complexity and a lack of applications.
  3. Affordability must be addressed. More homes don’t help if the people in need can’t afford to buy or rent them. An RBC report said that Canadians can expect to spend 64% of a median income on housing costs, compared to 39% just a few years ago. The government could improve affordability by reducing taxes, lowering inflation, and creating the conditions in which interest rates could fall – all of which are achievable by curtailing excess government spending. Some programs also ignore affordability. For example, the government is removing the GST on newly built rental units, but it applies to all units – including million dollar condos. The Conservative plan would remove GST only on affordable rental units (usually defined as housing that costs about one-third of an average income). Builders need to be incentivized to build accessible housing, not just high profit units.
  4. Builders say that obstacles to construction include runaway inflation on building products, high interest rates on loans, and a shortage of skilled labour. These are all economic circumstances that the government could address. It would be better policy to create the conditions that allow more construction to happen, instead of an array of taxpayer funded grants and loans.

The Budget Housing Measures

The government has proposed a complex and confusing patchwork of programs they hope will spur construction. Here are just some of the initiatives (I counted 53 separate programs, policies and initiatives) funded by Budget 2024. You decide if they are accessible and helpful to the average family looking for an affordable home.

Tax Free First Home Savings Account: This is not new, but is a good plan to help first time buyers save for a down payment. Like an RRSP, contributions are tax deductible, and like a TFSA, withdrawals do not attract tax if the funds are used to buy a first home. Individuals can contribute $5,000/year to a total of $40,000. If you are part of a couple, you could save up to $80,000 over eight years for a down payment.
Extended amortization: First time buyers purchasing a newly built home may apply for a 30-year amortization. This will apply to very few buyers, and will increase interest costs over the life of the mortgage. The catch-22 is that it only applies to those with mortgage insurance which typically means less than a 20% down payment; but it also only applies to newly built homes, and developers typically require a down payment of more than 20%. Few first time buyers will meet the full criteria.
Expanding the Home Buyers Plan: The HBP is an existing program that allows you to borrow from your RRSP for a down payment, repaying it over 15 years. The withdrawal limit will be increased from $35,000 to $60,000, and the time before repayments begin will be extended from two years to five. This is a good resource for those first time buyers who actually have $60,000 in their RRSP. It will, however, diminish their long term retirement savings (hopefully balanced by the equity in their home).
Canada Green Buildings: A $903 million fund will support energy retrofits for low to median income homeowners, and includes incentives to provinces to upgrade building codes to reduce emissions.
Short Term Rentals: To discourage the use of homes for short term rentals, a fund of $50 million will help municipalities enforce restrictions; and the income tax deduction for short term rental expenses will be removed.
Ban on Foreign Ownership: The ban on foreigners purchasing Canadian homes will be extended to Jan 1, 2027.
Apartment Construction Loan Program: $15 billion will top up an existing program to total $55 billion intended to build a total of 131,000 new apartments over ten years. Some of the strings that had made it difficult for builders to access the funds were loosened, such as more flexibility on energy efficiency requirements and extending loan terms. Provinces will be expected to match these funds.
Housing Infrastructure Fund: A $6 billion fund will help municipalities service the land on which new housing is to be built (e.g. water treatment, broadband, green energy, transit).
Housing Accelerator Fund: $400 million will top up the $4 billion fund that incentivizes municipalities to speed up home construction by changing zoning bylaws, streamlining approvals, and making land available.
Affordable Housing Fund: A $1 billion top up to the $13.2 billion fund which provides low interest or forgivable loans for new and repaired affordable homes with a focus on indigenous communities, Black households, womens and childrens shelters and transitional housing for the homeless.
The Rapid Housing Initiative: $4 billion will support constructing 15,500 homes targeted to women-focused projects and Indigenous housing.
Tenant Protection Fund: This fund will provide $15 million to legal aid and tenants’ advocacy organizations to protect tenants from unfair rent hikes, renovictions, or bad landlords.
Renters’ Bill of Rights: This will require landlords to disclose a clear history of apartment pricing, will “crack down” on renovictions, and create a nationwide standard lease agreement. The Canadian Mortgage Charter will also be amended to ensure that a record of on-time rental payments factors into renters’ credit scores.
Canada Rental Protection Fund: to preserve existing affordable rentals, the fund will support community housing providers that acquire affordable rentals at risk of being sold and repriced.
Cooperative Housing Program: $1.5 billion in loans and contributions will facilitate new co-operative housing projects.
Reaching Home: $1 billion will top up the current $4 billion for urban, Indigenous, territorial, and rural and remote communities to help address homelessness. Another $250 million, which must be matched by provinces, will specifically target people living in encampments.

You can see all of the programs and initiatives here: