For the first time in two years, the Canadian government has presented a budget. It seemed to be heavily focused on several specific areas of the economy: Pandemic/economic aid, child-care, and indigenous communities.
Below we will give an overview of the key takeaways from the more than 700 pages that was the budget. It is also important to consider some things that were not included in this budget.
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- $30 Billion over the next five years to aid in early learning and child care. In addition there will be $8.3 billion in ongoing support as well. The goal of this is to see child care costs cut in half by next year and to average $10 per day by 2026.
- The government proposed an additional $3 billion in spending over 5 years starting in 2022-23 to health Canada. This is to support provinces and territories to improve standards of long-term care.
- There has been a large push from many for an increase in the minimum wage. The Liberal government responded to this by introducing legislation to increase the minimum wage to $15. However, if your current province or territory has a higher minimum wage, the current wage will prevail.
- $2.2 Billion to Canada’s bio-manufacturing and life-sciences sector. This is to rebuild the national capacity in bio-manufacturing and vaccine development and production.
- Introduction of a new Canada Recovery Hiring Program. This will provide eligible employers with up to a 50% subsidy on the incremental remuneration paid to eligible employees between June 6 and November 20.
- $18 Billion spent over the next 5 years to narrow the socio-economic gap between Indigenous and non-Indigenous people.
- Additional spending of $1 Billion to help with the rollout of broadband projects.
- $2.5 Billion in new spending and a reallocation of $1.3 billion in order to help build, repair or support 35,000 housing units.
- A national tax on vacant property owned by non-residents.
- A new “Luxury Tax” on the sale of luxury cars and personal aircraft with a retail value of over $100k. As well as on boats over $250K.
- The budget includes over $100 Billion in new spending over the next three years.
- The 2021-2022 budget records a deficit of $155 Billion.
Things Not In This Budget
There were a couple of notable items that many thought would be included in this budget that were not. The two main ones being a increase in the capital gains inclusion rate and the removal of the principal residence exemption.
The increase in the capital gains inclusion rate would impact savers and investors. Currently the capital gains inclusion rate is 50%. This means only 50% of the increase in value of the property or asset sold is taxed at your marginal tax rate. This rate could be increased to 75% in the future. This would primarily effect those who are investing in real-estate, stocks, etc. It would lower the potential investors net return, and could discouraging people from investing.
The removal of the principal residence exemption would adversely affect even more people than the increase in cap gain inclusion. The principal residence exemption allows for the gain in the value of an owners principal residence to not be taxed upon its sale. With the majority of Canadians having much of their net worth tied up in their homes, this could be detrimental. Many people believe they will downsize their houses to help fund their retirement. However, if the gain in value is no longer tax-free, there won’t be as much available to cover lifestyle expenses. Thus, forcing more people to be reliant on the government.
This budget presented a lot of additional spending on top of what has already been spent in the name of COVID. Although some of the initiatives may be good, printing money and running a deficit to fund them is not sustainable. We suspect additional tax increases will come in future budgets. Hopefully, all of the new spendings will not be for nothing and will actually increase economic output to eventually pay for itself.
Although we didn’t see any major tax changes that will affect the average consumer, we very well could in the coming years. The political pundits believe that if the Liberal government were to call for an election this year, of which there is a good chance, Trudeau would win a majority. If that were to be the case, it would become a lot easier for the Liberal government to push for tax increases that would effect the average consumer.
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