The federal budget unveiled in Ottawa yesterday (April 7) focuses on reducing the national debt
while implementing a new tax on Canada’s banks and insurers.
The budget is short on spending initiatives and instead aims to reduce the federal deficit to near
zero within five years. The net cost of new measures introduced in the budget is $31.2 billion
over six years. Some economists had expected that number would be closer to $100 billion.
Cumulative deficits through 2027 will be $50 billion lower than forecast previously, with revenue
exceeding projections by about $90 billion over that period.
The budget is a recognition by the ruling Liberal government that more fiscal caution is needed
given rising inflation and global uncertainties that are clouding the economic outlook.
The budget also marks a pivot for Prime Minister Justin Trudeau, who has faced heavy criticism
over spending during the pandemic, which doubled the federal debt in the last two years.
Canada’s deficit hit a record $330 billion at the end of 2020.
The 2022/23 budget does not include funding for a universal prescription drug plan that was part
of a deal the minority Liberal government struck with the socialist NDP political party, as details
of that program must still be worked out.
As promised in last October’s election, the Liberals are attempting to rein in soaring house
prices by curtailing demand through taxes on speculators and a freeze on home purchases by
foreigners. The housing measures in the budget total $10 billion over six years, including a $4
billion accelerator fund that will give incentives to cities that create more supply.
However, the measure announced in the budget that is getting the most attention is a new tax
on Canada’s big banks. The Liberals introduced a tax on large banks and insurance companies,
which will see a permanent 1.5 percentage-point-increase in their corporate income tax rate.
Banks and insurers will also pay a one-time 15% surtax on income above $1 billion for the 2021
tax year. Those measures are expected to raise $6.1 billion for the federal government over the
forecast horizon.
On defence, the budget pledges more than $8 billion in new funding over five years, though few
details were provided on how the money will be spent. Continental defense and a boost to
Canada’s cybersecurity capability both received prominent mention in the budget, and the
government also promised a further $500 million in military aid to Ukraine this fiscal year. ?
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