Trudeau government targets Canada’s richest to help pay for spending in $480.5B budget

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 capital gains tax.

When combined with those revenues, the net spending increase from the budget 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 GDP. 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 for wealthy individuals and corporations as a necessary tool to make the tax system fairer for all.

“Asking those who are benefitting 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 “tax-and-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 scaleup 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 intelligence, money promised for military aid to Ukraine, and measures to support veterans. 

The budget also books more than $9 billion over five years in new spending for Indigenous communities, including almost $1.2 billion for education and $1.5 billion for Indigenous youth. And it expands on last year’s suite of tax credits to spur private spending in the green economy, from an expected $80 billion by 2035 to $93 billion. 

To help pay for it all, the government will increase the capital gains tax for a small segment of the richest Canadians — some 40,000 people 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 subject to income tax from 50 to 66.7 per cent, but only for the segment of investments that exceeds $250,000 for individuals, and on all capital gains realized by corporations and trusts.

The increase will not apply to the sale of Canadians’ principal residences, which remain exempt from the tax on capital gains, the budget says. 

On top of the tax increase on high-earning 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. And in a wink to her staff’s work on the plan, the names of public servants in Finance and on the minister’s political staff were used in the “typical” examples of those who would be helped by budget measures.

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 full-time 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 the “soft landing” after the pandemic.

It cites the private sector economists’ projections that inflation, which has come down from a 2022 peak of 8.1 per cent, is expected to remain around three per cent through the first half of this year, and gradually decline to close to two per cent by the end of the year.

Still, key household costs like groceries and housing remain stubbornly high. 

Solving the underlying “structural issues that are behind the high cost of essentials … is a key focus of Budget 2024,” said Freeland.

The budget also points to a bump to the country’s economic output that the Bank of Canada last week indicated will come once the Trans Mountain pipeline extension project starts coming on-stream next month.

The central bank monetary policy report projected it will boost the second quarter economic activity by a quarter of a percentage point — a big hike for a single energy export in a hot commodities market. Freeland called it a “great national project and said “it took an activist Liberal government to get it built.”