What Bay Street will be watching for in the budget
HOUSING, MORTGAGE RELIEF, OPEN BANKING, AND OF COURSE, RED INK
All eyes will be on Ottawa Tuesday when Finance Minister Chrystia Freeland tables the government’s 2024 budget. Here’s a look at five things Bay Street will be watching for, from deficit discipline to new mortgage measures.
RED INK, BUT HOW MUCH?
David-alexandre Brassard, chief economist at CPA Canada, points out that a balanced federal budget is extremely rare: “It has only happened once since 2008, and there seems to be no desire to do so in the near term,” he wrote in a budget preview. “Instead, the government has committed to keep annual deficits under one per cent of GDP by 20262027.”
He wrote that even that pledge — which would keep the deficit below $40 billion — may be scratched due to new pharmacare spending alongside increases in personnel costs and potential increases in military spending, but other economists are anticipating the government will do everything it can to keep the deficit in check.
Avery Shenfeld, chief economist at CIBC Capital Markets, said “I expect the finance minister to try to stick closely to earlier deficit targets, which means that the budget will need either tax measures or spending cuts to offset the new spending we’ve been hearing about.”
Freeland said Wednesday that middle class Canadians won’t face higher taxes to pay for the new programs and services, raising the prospect that those tax measures would be applied to wealthy Canadians or corporations.
Her government has already hit up the country’s large banks to help cover increased spending during the COVID-19 pandemic, and the House of Commons finance committee has recommended that grocery giants help pay for GST rebates.
HOUSING, HOUSING AND MORE HOUSING
This budget is expected to extend the government’s focus on ways to increase housing supply. This could include the introduction of added measures aimed at the construction sector to cut red tape and reduce barriers to building new homes, according to accounting and advisory firm Grant Thornton.
CPA Canada’s Brassard said he expects the government to “double down” on previously announced initiatives to build more homes faster, such as the Housing Accelerator Fund — which provides funding to municipalities for streamlined, high-density and affordable new home building — and the removal of the GST on new rental housing.
The federal government didn’t wait for the budget to announce a $15-billion top-up to its new apartment construction loan program, which provides low-cost funding to borrowers during the riskiest phase in the development of rental apartments.
Another program unveiled early by Prime Minister Justin Trudeau last week earmarked $6 billion in funding for municipalities to build crucial infrastructure for housing such as water, wastewater and solid waste projects and promote long-term housing priorities.
But Ottawa is already facing backlash from some provinces because the money is tied to requirements such as getting rid of single-family home zoning and giving automatic permission to fourplex construction. The Alberta government has responded by tabling legislation that would require municipalities to get approval from the province before entering funding agreements with the federal government.
NEW MORTGAGE RELIEF MEASURES
Housing affordability has featured heavily in past budgets, and some think this one could include further relief when it comes to mortgages. Trudeau suggested as much last week when he was asked by reporters whether amortization periods to pay off home loans would be extended to 30 years from the standard 25. “On mortgages, we will have more to say between now and the budget date on April 16, and perhaps we will save it for April 16,” he said, declining to directly address amortization.
Lengthening the standard amortization period to lower monthly payments has been discussed by politicians for several years — even before the financial crisis in 2008. But it has taken on fresh urgency for some as house prices have skyrocketed beyond the reach of many.
Mortgage strategist Rob Mclister said Trudeau could have been referring to any number of measures or incentives, from targeted extended amortizations or tax credits for first-time buyers with insured mortgages to lower default insurance premiums for select borrowers or an increase in the value limit for default insurance to $1.25 million from $1 million. Such incentives could also be tied to mortgages for newly built homes, he said.
MORE CLARITY ON OPEN BANKING
The federal government committed in the fall economic statement to adopt legislation and fully implement a governance framework for open banking by 2025, aiming to allow Canadians to more easily shift their financial data between banks and fintechs to spur competition.
Details of the legislative framework to move this forward are expected in the spring budget, according to Parna Sabet-stephenson, a partner at law firm Gowling WLG.
“We understand that the budget will reveal timelines for the implementation of consumer-driven banking and that there may be different timelines for different aspects, with some elements to be fast-tracked to permit implementation ... by 2025,” she said.
The final report of the advisory committee on open banking recommended a hybrid system involving government and industry, with an emphasis on protecting consumers while encouraging innovation, but it remains to be seen what role industry will play in the framework, said Sabet-stephenson, whose area of focus is open banking and emerging technologies.
A government-led entity will supervise and enforce the framework, and the budget may clarify whether this will be a new or existing agency, she said, while the banking industry would be well suited to contribute on technical issues, such as settling on the single technical standard that is expected to be used for “permissioned” data sharing. She said rolling out open banking will also require “significant collaboration” between federal and provincial governments to avoid duplicative or conflicting requirements, with common privacy, security and liability rules applicable to all participants.
Banks and fintech companies also expect the government to lay out how it will address liability for any data breaches.
TOUGHER RULES ON MONEY LAUNDERING
Shifting geopolitics and increasing risks are likely to keep the government’s focus on financial crime including money laundering in this years’ budget, said Alana Scotchmer, another partner at Gowling WLG.
In particular, following consultations last year, there are expectations for changes to modernize the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and potentially give more powers to enforcement agency FINTRAC.
“In order to make FINTRAC more effective, the government has been considering expanding (its) powers in the last few years,” said Scotchmer, adding that staffing up with specialists and upgrading technology to bring Canada’s anti-money laundering regulator in line with other countries that take financial crime seriously would require more funding.
The budget could also provide an update on plans to introduce a Canadian financial crimes agency to work alongside the RCMP and FINTRAC.