With weeks of campaign-style announcements from the Liberal government, Canadians had a good idea of what was coming in the 2024 budget. Spending increases were pending for programs ranging from housing initiatives, to the military, to a massive injection of funds into AI development in Canada.
The Trudeau government made it clear that fiscal restraint would not be a priority in the budget this year. The Liberals did promise not to raise the budget deficit beyond $40 billion. That left the question of how they intend to pay for so many lavish spending promises.
On the good news front, the government resisted calls from Jagmeet Singh’s NDP to punish grocers and energy companies with an “excess profit” tax. The budget has no provisions to raise the GST or to increase the personal income taxes of average Canadians.
On the bad news front, the government will be implementing a massive increase in capital gains taxes. The Liberals claim this increase will raise $19 billion over the next five years. That goal is unlikely to be achieved as tax increases on capital gains tend to send capital fleeing the country and chill investment. There’s no better way to slow investment than having the government take a larger bite out of capital gains made by an enterprise.
Why risk your dollars investing in companies or starting new enterprises when you will be punished for success?
The federal finance department is well aware of this problem, which is why they set a five-year timeline. By the time people see the tax has failed to raise what was expected, years will have gone by and most people will have forgotten what had been promised.
Going after capital gains also tosses a bone to the NDP to get their support to pass the budget. It will be framed as achieving fairness among Canadians and taxing the rich. While low-income people won’t be directly impacted by the hikes in capital gains taxes, many in the middle class have investments that will feel the bite. Many small business owners have invested decades in their businesses, only to see a larger piece of their gains taken when they try to cash out and retire. The support of the NDP was never going to come cheap.
The spending plans are also spread out over long timelines. This number-juggling allows the government to present eye-popping numbers with promised spending increases.
The government realizes that affordable housing is the top issue pressuring Canadians today and that’s reflected in the budget.
The government has promised to build 3.9 million homes by 2031. No rational economist believes that can or will happen, but it doesn’t stop the government from making the promise and earmarking billions of dollars towards pursuing that impossible goal. When the success or failure of the initiative is to be seen it will be years down the road and well into the next election cycle.
Likewise, the budget calls for $8.1 billion in new spending on national defence, but it has spread that spending over five years. It promises $73 billion will be spent over the next two decades.
The budget document is a 400-page brute and is like a loaded pizza with a myriad of spending initiatives, from tossing more money at CBC Radio, to school lunch programs, to building high-speed rail services. Many of the smaller spending initiatives are spread out over the years too.
The budget makes some optimistic assumptions about Canada’s economic outlook and is dependent on a robust economy over the next year to maintain the projected deficit level. If the capital gains tax hike slows the economy or if interest rates rise, the deficit will grow quickly.
The 2024 budget was created to be everything for everybody. It’s unfortunately a political document created with hopes of increasing popular support rather than a plan to get Canadian finances in order. Anybody hoping for a return to the days of the deficit-slaying Liberals of the 1990s has had those hopes dashed.
Tucked within the budget is a line item estimating the cost of debt servicing to be over $54 billion this year. That’s more than the entire amount the feds transfer to the provinces for health care, and those debt-servicing costs are projected to increase.
Canada is in economic dire straits as the GDP per capita ratio continues to drop while the cost of living climbs. It’s only through tough decisions and economic restraint that we will see that trend changing. Sadly, the current government has decided to kick the can down the road rather than do the dirty work required.
Prime Minister Trudeau has said this budget will bring fairness to every generation. There’s nothing fair about saddling tomorrow’s generation with debt to try to win political favour today.
