April 2022

The Canadian government released their new proposed budget late last week. It shows a clear shift away from pandemic spending to more focused spending as a commitment to their deal with the NDP. The attention was on support for housing and defence as well as an introduction of a dental care plan. Here are some of the highlights.

Housing

New programs announced are designed to speed up the creation of new housing as well as providing tax incentives for those renovating multi-generational homes. As part of this, new measures were introduced to ban the foreign purchase of residential property for a two-year period. There is also the creation of the new First Home Savings Account (FHSA). It allows first-time home buyers to contribute $8,000/year to a maximum of $40,000/lifetime toward the purchase of a new home on a tax-free basis. The contributions are tax-deductible and the withdrawals (as long as it is going towards the purchase of a home) are not taxed. This program is set to begin in 2023.

Defence spending

The government announced a further $8 billion dollars in spending to bolster Canada’s national defence. This includes a policy review aiming to enhance the size and capability of the Canadian Armed Forces in light of the changing international landscape. It also includes a commitment to cyber security, as well as increasing its commitments to NATO and NORAD. The budget also includes over $1 billion in additional support for Ukraine.

Dental Plan

The budget also included a new dental plan for Canadians with family income under $90,000. Anyone making between $70,000 - $90,000 will have co-pay with those whose income is under $70,000 not paying anything. The program will cover children under 12 years old in 2022 and then expand to include anyone under 18, seniors and people living with a disability in 2023. Full implementation would be reached by 2025.

Other interesting items

Measures to support spending on clean energy, including working toward establishing an investment tax credit of up to 30% for support toward businesses focusing net zero technology, battery storage solutions and clean hydrogen. New commitments that encourage the use of zero emission vehicles and introduction of charging stations were also announced, as well as plans for a Canada Growth Fund that will aim to attract investment in new technology and restructuring supply chains for natural resources. The budget also aims to provide additional support for small businesses, phasing out access to the small

business tax credit more gradually, with an end point of $50 million in taxable capital rather than the previous $15 million.

Fiscal Implications

The proposed new spending will cost an additional $31 billion over five years, which amounts to 1-2% of GDP. This is a substantially smaller increase than the previous pandemic-era budgets. The budget now projects that the deficit will shrink to $114 billion in 2022, down $31 billion from initial estimates due primarily to faster than expected economic growth and increased revenues. The budget then projects that the deficit will shrink to $53 billion in 2023, and to $40 billion in 2024, stopping short of a balanced budget with an $8.4 billion deficit projected all the way out in 2027 (rbcgam.com) This assumes we will be able to get inflation under control and that we avoid any type of recession or other economic shock.

That is likely a little optimistic, but then, most budgets are.

This information has been prepared by Shannon Straathof who is an Investment Advisor for IA Private Wealth® and does not necessarily reflect the opinion of IA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Investment Advisor can open accounts only in the provinces in which they are registered. IA Private Wealth® is a member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization.