The Decibel - What the 2024 federal budget means for you

Episode Date: April 17, 2024

The 2024 Canadian federal budget has been unveiled, with a particular focus on affordability and housing this year. But the 430 page plan covers a wide gamut of other spending details – from defence, tax hikes, generational fairness and much more. Making sense of it all can be overwhelming.We’ll cover all the key points of this year’s budget and explain how it will affect your wallet and financial prospects. A team of Globe and Mail journalists – senior political reporter Marieke Walsh, real estate reporter Rachelle Younglai, Report on Business reporter Mark Rendell and personal finance expert Rob Carrick – join The Decibel to explain what you need to know.Questions? Comments? Ideas? Email us at [e-mail]

Mr. Speaker, we are acting today to ensure fairness for every generation. On Tuesday, Finance Minister Chrystia Freeland unveiled the federal government's budget. We are moving with purpose to help build more homes faster. We are making life cost less. There is a lot to unpack in the budget. So today, we're going to take you through it with four Globe reporters. We'll be talking about housing, cost of living,

how the government is going to pay for it all, and how it will affect you and your finances. I'm Maina Karaman-Wilms, and this is The Decibel from The Globe and Mail. So we're going to start with the basics today with Marika Walsh. She's The Globe's senior political reporter. Marika, good to have you back. Happy Budget Day. Happy Budget Day or something like that.

So you've been following this all day. Just walk me through the important things in this budget. Like, what are the big takeaways here? I think the first broad takeaway is the strategy and the direction that this government wants to go in. They are in a minority government. The liberals are in their third mandate. Prime Minister Justin Trudeau is hoping to go for a fourth mandate in spite of polling

that has been consistently bad for about eight months now. And what we're seeing in the response from the government is big spending, big tax increases on the wealthiest of Canadians, as well as on corporations. And it seems to be a message that the government thinks that the best way to combat the rise of Pierre Paul Lievre and sort of his populist policies is to double down on big government and an activist government. And so you say big spending, let's get into the numbers here. How much spending are we talking about? So the government unveiled $53 billion in new spending over five years. And, you know, those kinds of numbers, we kind of lose perspective on what that

means. But an economist from Scotiabank, who was in the lockup with us, that's the lockup where journalists sort of go behind closed doors to read the budget before it's released, gave a really good comparison. She said essentially that the level of spending now that the government is planning for this budget year is comparable to the very high levels of spending that the government was rolling out during the pandemic, which was a once in a century crisis is a very interesting comparator for sort of the average Canadian to understand the scale that we're talking about. So we know housing and taxes are significant features of this budget, and we're going to get into those soon. But what are the

other important things in this budget that you noticed? There are some really interesting things in the budget. So other big spending items are $10.7 billion over five years for defense, $9.1 billion in new spending for indigenous communities and businesses. And then funding for economic growth measures comes in at $7.6 billion over five years. And $6.4 billion in new funding is allotted to community health and safety, which is sort of a big catch-all that includes things like funding for asylum seeker programs and also for electric vehicles. So that sort of is, you know, the chapter that sort of caught everything else that didn't fall under every other chapters. Okay, so that's the spending. What about the deficit for this budget, though?

So part of the spending is offset by new tax increases on corporations and individuals, but it's not enough to cover all of the new spending. And so the deficit for 2024-25, which is this current fiscal year, is projected to be $39.8 billion. To give people some understanding of the context for that, put another way, the deficit this year will be 1.3% of the economy. I want to ask you about the way that this was rolled out. Prime Minister Justin Trudeau and Finance Minister Chrystia Freeland have been on a little bit of a pre-budget tour, right? They've been making announcements over the last few weeks. Is that normal? Well, it depends on what's normal. It is normal for provinces. It's normal for past federal

governments to do. But it's not something that this liberal government has done. And it's actually one of the things that they've really been criticized for. And so in the face of very low poll numbers for the liberals, in the face of them trying to show people that they are paying attention to things like the housing crisis that is so challenging for people who don't already own a home or haven't already owned a home prior to, say, 2020, they're trying to show by repetition and by emphasis that they are paying attention to those big issues, that they are paying attention to the issues most pressing for the voters who, importantly, for Justin Trudeau, are the ones who delivered him his last two mandates in the

elections. It's still a bit early, I think, to know if it really punched through and resonated with voters. Early polling that didn't capture all of the announcements up to the budget suggested that it wasn't punching through. But people in government believe that over time, it will show that the message is getting through. Marika, thank you so much for being here on such a busy day. Appreciate it. Thanks so much for having me. There were a lot of housing announcements in this budget. So Rachel Young-Lai, The Globe's real estate reporter, is going to take us through them. Rachel, thank you for being here.

Thanks for having me. So the federal government announced a bunch of spending around housing. We saw a lot of this actually come out even before the budget on Tuesday. So let's talk about a few of these programs, starting with the biggest one, which is around building rental units. Tell me about this program. Yes. So the federal government, as you said, pre-announced this, and they announced an additional $15 billion for this program called the Apartment Construction Loan Program. It's been in existence since 2017. Basically, the federal government gives developers low-cost loans so they can build rental apartment buildings. And it comes with stipulations, right, about affordable housing too? Yes, yes. It comes with some requirements, and one of them is that a certain percentage

of your building has to be affordable. And so you said this has been running for a few years now, since 2017. Do we know how effective it's actually been in getting, I guess, rental units on the market? Yeah, I mean, it's been effective. They've built nearly 30,000 rental units since 2017. So yes, it has contributed to the building of some apartment buildings across the country, and some of them do have affordable rents. But when you look at how much rental buildings have been built since 2017 over the same period, it equates to about 7% of the total rental units. So it has helped, but it hasn't been a huge boon to the rental construction industry.

Okay. There was also another announcement about rental units. This is a protection fund. What is that about? Yeah, so this is brand new. They announced that they would provide $1.5 billion in loans and grants for a rental protection fund. So basically they are providing nonprofits with funding so they can go out and buy existing apartment buildings, so apartment buildings that are already affordable.

So right now when an owner wants to sell their affordable apartment building, they'll put it out on the private market. Nonprofit groups, they just don't have the money or the access to loans the same way that bigger companies and private companies have access to. So this rental protection fund is going to give these nonprofits more of an equal playing field. So it'll give them cheap loans and grants so they can go out and buy these apartment buildings, and then they'll be able to keep those rents affordable. And the government also has a plan to use federal buildings and land for housing as well. How are they planning on doing that?

Yeah, so for the longest time, well, since 1995, they've been selling federal land to the highest bidder. And now the federal government is saying, oh, we have this resource. We have this land. Maybe we should attach some requirements with that land. And so late last year, they started saying, well, any land that we sell will have an affordable housing requirement. And now today they're saying not only will it have an affordable housing requirement. And now today they're saying, not only will it have an affordable housing requirement, we may only lease the land instead of selling it outright. They also said that they're going to use all the tools available

to convert federal land into housing. And they said that they will look at some of their federal offices and see if they can turn some of their unused or underused offices into housing. I also want to ask you about this infrastructure fund, Rachel. This is actually something we've heard about for the last few weeks because this was rolled out a little bit before the budget as well. What should we know about that? So it's money that's going to the provinces and to municipalities so they can build things like a sewage system if they want to build more housing, for example. Okay. And this is actually the thing that's – there's been a little bit of conversations between the premiers, the provinces, and the federal government, right?

There seems to be some tension about the strings attached to this fund. Yeah, yeah. There are strings attached. They're the strings attached to this fund. charges, change the zoning so homes can be built more densely. So they're not going to provide that funding unless the provinces and the cities agree to do that. This is the whole issue about fourplexes. So the density question here. Yes, yes, yes. Just lastly here, Rachel, if we take all of these things together, I guess, what is the picture that we're left with? Like, what kind of difference could these measures make for the current housing market? I mean, I think the federal government is really trying to get developers to build quicker and trying to help them develop. So they're cutting costs wherever they can. And they're trying to get municipalities and provinces to sign off on the construction of new housing faster.

So I think that all these measures, and they've been rolling out similar incentives since last year, I think that it will help create more housing. Rachel, thank you so much for being here today. Thank you. Thanks for having me. After the break, how is the government planning on paying for these measures? And what does it all mean for you? Finance Minister Chrystia Freeland announced billions of dollars in new spending. But the government has to strike the balance of spending without driving up inflation. Mark Rendell is here to walk us through this. He's with The Globe's Report on Business.

Mark, thanks for being here. Thanks for having me. So Mark, the government is raising taxes on some wealthy Canadians and corporations to help pay for all of this new spending. What exactly will that look like? Yeah, so the big change was to the inclusion rate for capital gains. And that sounds nerdy and kind of tax policy-ish, and it is, but essentially what that means is if you make money with a capital gain, so let's say you sell a stock or an investment property and you make money on that making capital gains, they're going to get taxed on two thirds of that income rather than just half that income. So that's a significant change for wealthy individuals who may earn significant amounts of income through capital gains. So it's going to hit a relatively small portion of the population,

a couple hundred thousand businesses. They estimated about 40,000 individuals will be affected by this. But it's bringing in a lot of revenue. They're expecting over the next five years, roughly 20 billion in additional revenue. So it's a relatively targeted tax change, but it has quite significant implications. And how effective will this be in helping the government raise money? I mean, based on their estimates, it looks quite considerable. I mean, $20 billion over five years is a large amount of money. There are not a lot of tax levers you could pull to raise that kind of revenue without significant impact on a broad portion of the population. I heard one person describe it as a relatively surgical tax increase

because it's not impacting a broad segment of the population. The government says it's going to increase, I think in the budget today, they announced around 53 billion-ish in new spending. So slightly under half of that is going to be paid for theoretically with this new capital gains tax change. So Mark, in the fall, the government set out some parameters for spending, right, to stay within a deficit of $40.1 billion for the past fiscal year. And we did find out in this budget that they did stick to that. But of course, the government has set these guardrails before and it hasn't necessarily kept to them. So why was it important this year for the government

to do this? Yeah, well, if you listen to Finance Minister Christa Freeland in the months leading up to the budget, she kept talking about how she didn't want the budget to make Bank of Canada Governor Tiff Macklin's job more difficult, right? Bank of Canada right now is trying to slow down the economy to bring inflation back down, right? It's using interest rates, it's jacked interest rates up really high. And that's essentially a giant break. And they're trying to slow down spending. They're trying to slow down investment. They're trying to do all these things

to slow down the pace that prices are going up, right? Get that inflation back down to target. And a lot of new government spending can work in the opposite direction. It can be like stepping on the gas pedal while Tiff Macklin stepping on the brake. And so what Christopher Yellen has been talking about and what she tried to do today by hitting these fiscal guardrails is not introduce too much new spending. Now, it's still a big spending budget. It's definitely,

there's a lot of new spending in there. Perhaps her mind was more on fiscal restraint than it otherwise would have been because she really doesn't want to get in the Bank of Canada's way. The Bank of Canada is inching closer to lowering interest rates. You had a pretty hopeful inflation report that came out today. Core inflation came down more than expected. Headline inflation is below 3%. But I guess just based on what came out of the budget then, Mark, what do you think will happen with interest rates in the next few months? Like, do we still anticipate that they will be headed downwards? At the end of the day, you know, what happens in the budget may have an impact on the margin. But, you know, the fundamental driver of whether interest rates are going to come down in the coming months or

not is going to depend on, you know, the inflation reports. There's other things the Bank of Canada watches as well. You know, it's looking at overall GDP growth. It's looking at labor market numbers. And if the Bank of Canada sees that continuous slowdown in inflation in the next couple of reports, if it sees still relatively weak economic growth, if it sees the unemployment rates start to tick up again, all of these signs that the economy is not overheated anymore, it could very well start cutting rates in June. You know, last week there was a rate decision and the Bank of Canada, you know, they didn't cut rates,

but Tiff Macklin said it was within the realm of possibilities that a cut could come in June. It certainly doesn't mean a June rate cut is guaranteed, but, you know, for the first time in a long time, a rate cut is at least being considered at the next interest rate announcement. Mark, thank you so much for taking the time today. Thanks for having me on. And finally, what does all this mean for you and your finances?

The Globe's personal finance columnist, Rob Carrick, is here to tell us. Rob, thanks so much for joining me again. No problem. So as we've been discussing, housing is a big concern in the budget this year. And there were some measures announced that are trying to make it easier for people to really get into the housing market. So can you start by telling me about those? Well, the first thing the government is doing is planning to build millions of houses. That's the number one thing they're doing.

If they can flood the market with new houses, that'll satisfy demand, and maybe price increases will calm down, and that will give us a more orderly housing market. Everybody pretty much agrees in Canada right now that we don't have enough home building going on, but they're also doing things for affordability for people who are buying houses now, not in X number of years when all these great new houses are going to be built if they ever end up being built. So the first thing they're doing is they're allowing more people to get 30-year mortgages and they're letting people withdraw more money from their RRSP

through the federal homebuyers plan. They're going to allow you to withdraw $60,000 instead of the current $35,000. Okay, so the RRSP rule seems, that seems pretty straightforward, that limit is going up. But let me ask you about the 30-year mortgage thing, because this sounds significant and important to understand. What exactly is that, and what kind of a difference would that make for people looking to buy a home? Well, people in the mortgage industry were kind of hoping that the government would just say, everybody who has a down payment of less than 20% can now get a 30 year mortgage. Currently, if you have a down payment of 20% or more, 30 year mortgages are

fine. That's amortized over 30 years instead of the usual 25. So the people with the smaller down payments couldn't access that. And everybody wanted wide open 30 year mortgages. But what they've done is they've only allowed 30 year amortizations for down payments of less than 20% if you're buying a newly constructed home. And that's a pretty big limitation because a lot of people want to buy resale homes in particular neighborhoods. And if it's limited to new construction, well, you have to go where the new construction is. Yeah. Okay. So this only applies for a first time buyer with a new build. Why is it so targeted? Is there a reason why this is so specific? Well, I think one reason is they're telling the developers, you build these houses. We're giving people an incentive to move into the houses you're building. We're going to give them this break of the 30-year. Let them have a 30-year mortgage. Makes the payments more affordable. Another thing I think they're doing is they're trying not to ignite the housing market. If they say everybody can now get a 30-year mortgage,

no matter what your down payment size is, that's going to facilitate a lot of home buying, and it's going to bid up prices, and you're end up probably going to have affordability be awash. You've improved affordability by allowing longer payments, but prices are rising because people are bidding them up again. You know, we used to have mortgages in Canada of 30, 35, and 40 years, but previous governments had to roll those back because there was just too much stimulus in the marketplace. And they were concerned that people would be buying houses and not really being able to afford them. The only thing that would make it affordable was this long, long, long amortization. And of course, the greater good is served when you pay off your house in a shorter term,

not a longer term. Can you give us a sense, like when we're talking about a 30-year mortgage, what kind of effect would that actually have on someone's monthly payments to go from like 25 to 30 years? Well, if you have a mortgage at 5%, and for every increment of $100,000, you're talking roughly about $50 in savings by going from 25 years to 30 years. So, you know, if you've got a $500,000 mortgage, maybe that's about $250 a month, you know. So that is a serious, worthwhile savings, but it isn't going to make a wild difference, I don't think. Yeah. Okay. So housing is definitely important. What other announcements did we see in this

budget, Rob, that will, I guess, directly impact people's wallets? Well, the government is making a big show of trying to do something about junk fees. Those are like transfer out fees and hidden fees that only crop up once you've started the buying process. One thing that really stuck out to me is they're going to put a cap on the NSF fee in your checking account, your overdraft fee. So if you overdraw your account, they're going to cap it at $10 and they're going to want banks to sort of give you a warning, you know, alert, you're overdrawn, put some money in your account or we're going to charge you $10. And you're not gonna be able to charge $10 multiple times. Another thing they're doing is they want to eliminate telecom companies charging a transfer

out fee if you want to move your account to another carrier. So those are two small examples, helpful, no one's going to be against those. But it sort of falls short of this rhetoric about ending junk fees. I mean, I think a lot of people would love to see just pure all in pricing. And Rob, I know you gave the federal government a report card essentially on this budget, grading how it will affect people and their finances. So overall, how did you grade this budget? I have to grade it about a C level. I think they're giving the right message. People want to be heard. I'm struggling. Living costs are expensive. I can't afford a house. And young people in particular

feel disenfranchised. And the government is like pounding this message of fairness, of generational fairness, that we understand what you're up against. But if we break down all the measures in the budget and we say, what are they going to deliver for the average household? A lot of people are not going to be affected at all by these measures. You know, I think the government's running out of tricks here. You know, what it really needs to do is to get interest rates down. That's not its job, but it needs to not get in the way of inflation coming down. Believe me, if we get a year of lower rates and 12 months from now, rates are significantly lower than they are. And we haven't lapsed

into a severe recession. I think people are going to start feeling better about things. And that will have nothing to do with the federal budget. Rob, thank you so much for taking the time to be here. No problem. Take care.

That's it for today. I'm Maina Karaman-Wilms. Our producers are Madeline White, Cheryl Sutherland, and Rachel Levy-McLaughlin. David Crosby edits the show. Adrienne Chung is our senior producer. And Angela Pachenza is our executive editor.

Thanks so much for listening, and I'll talk to you tomorrow.