Spending plan raises taxes for wealthiest
Liberals hike capital gains levy to offset billions in new funds for housing, social programs
The next election may be 18 months away, but the Liberal government is courting votes of the young and old with a new $39.3billion budget plan to house a squeezed generation, finance programs for Indigenous people, provide support for people with disabilities, and beef up the Canadian military.
To help pay for it all without blowing through its own fiscal restraint targets, Ottawa says it is taking aim at the investment profits of the richest Canadians, with an increase in the capital gains tax that it expects to reap more than $19 billion in revenue over the coming years.
Deputy Prime Minister and Finance Minister Chrystia Freeland said Tuesday the promise of “a fair chance to build a good middle-class life” is at risk for many young people as she presented her $480.5-billion budget, which she said will help them and ease their parents’ and grandparents’ worries.
The budget adds $61.2 billion over the next five years in new spending since last fall’s economic statement, and projects a $39.8-billion deficit in 2024-25. To partially offset those new expenditures, the government introduced revenue measures to rake in $21.9 billion over the next five years, with more than $19 billion of that coming from the increase in the capital gains tax.
When combined with those revenues, the net spending increase from the budget — titled “Fairness for Every Generation” — is slated at $39.3 billion over the next five years.
Yet even so, the budget continues the Trudeau government’s streak of annual deficits with no end in sight, and continues to rack up Canada’s public debt, which the document says will cost $54.1 billion to service this year alone.
An unimpressed Conservative Leader Pierre Poilievre lamented the size of the budget deficit and pledged his party would vote against the “wasteful” plan he predicted would further increase inflation in Canada.
The Bloc Québécois also dismissed the budget as “centralizing” power that belongs to provinces, not to Ottawa, while the Greens said it fell short of their hopes, including for more generous disability supports.
The NDP, which is propping up the Liberal minority government through a parliamentary alliance, claimed victory for pushing for the creation of a school food program and pharmacare. But the party objected to the fact that the budget did not raise corporate income taxes alongside the capital gains hike.
Freeland, meanwhile, insisted the Liberal blueprint “is fiscally responsible, since it sticks to fiscal guidelines she set for her department last year: to keep the 2023-24 deficit at $40.1 billion, or 1.4 per cent of gross domestic product.” It projects the deficit two years from now will be brought down to one per cent of the overall economy — which was another fiscal target that she set — thanks in part to projections the economy will grow. And Freeland forecasts the ratio of debt to GDP will continue to decline relative to last year’s fall economic statement.
She defended the increase to capital gains tax for wealthy individuals and corporations as a necessary tool to make the tax system fairer for all.
“Asking those who are benefiting from the winner-takes-all economy to pay a little bit more” impacts just 0.13 per cent of the population while, for 99.87 per cent of Canadians, personal income taxes on capital gains will not increase, Freeland said.
Robert Asselin, a former Liberal economic adviser who is vice-president of policy at the Business Council of Canada, called it a “taxand-spend budget” that only addresses fiscal challenges in the short term.
That’s because the capital gains tax increase is a “Band-Aid” that could dampen the appetite to invest in Canada and can only reliably return significant revenues over the next few years, he said.
“Over time, it’s not clear they have enough revenues to carry all these new programs,” he said.
Nearly all of the budget’s big measures had been rolled out before Tuesday, as the Liberals sought more public attention for their housing plan, cost-of-living help that showcased $1 billion in loans to build more daycare spaces, $1 billion to fund school lunch and breakfast programs and a boost to innovation through a $2-billion fund to spur the adoption of artificial intelligence and scale-up opportunities.
It puts dollar tags on promises that had not previously been funded, including a $2.5-billion carbon levy rebate for about 600,000 small- and medium-sized businesses, and $1.5 billion to fund the first tranche of a national pharmacare program it negotiated through its parliamentary deal with the NDP, starting with free birth control and diabetes medicine.
The budget also commits $6.1 billion over six years to a long-promised Canada Disability Benefit that will tie eligibility to a family’s income, and which critics say falls short of what’s needed.
The spending plan also pledges $1.8 billion over five years on measures to support national security and defence initiatives — on top of the $8.1 billion announced last week in a defence policy overhaul — such as more money for CSIS in- telligence, money promised for military aid to Ukraine and mea- sures to support veterans.
The budget books more than $9 billion over five years in new spend- ing for Indigenous communities, including almost $1.2 billion for ed- ucation and $1.5 billion for Indige- nous youth.
And it expands on last year’s suite of tax credits to spur private spend- ing in the green economy, from an expected $80 billion by 2035 to $93 billion.
To help pay for it all, the govern- ment will increase the capital gains tax for a small segment of the rich- est Canadians — some 40,000 peo- ple who it says represent 0.13 per cent of the population. The budget does so by raising the portion of income from the sale of stocks and investment properties that is sub- ject to income tax from 50 per cent to 66.7 per cent, but only for the segment of investments that ex- ceeds $250,000 for individuals, and on all capital gains realized by cor- porations and trusts.
The increase will not apply to the sale of Canadians’ principal resi- dences, which remain exempt from the tax on capital gains, the budget says.
On top of the tax increase on highearning capital gains, the government is hiking excise duties on cigarettes to reap an extra $1.36 billion over five years, and increasing vaping excise duties by 12 per cent, raising $310 million over five years.
Among other budget surprises: A legislated “right to disconnect” for federal workers. A law to force banks to label deposits of the Canada carbon rebate. A plan to redefine rural regions eligible for more money through those rebates.
Freeland promises some savings: the federal public service will be “required” to cover a portion of rising operating costs through existing budgets, and “natural attrition” should eliminate about 5,000 fulltime positions.
On the overall health of the economy, the budget says Canada will continue to avoid a recession — defined by two consecutive quarters of negative growth — and, although the economy is weak, it takes the view of private sector economists who say Canada’s economy seems headed to a “soft landing” after the pandemic.