Canada’s budget 2024: More spending, higher taxes, bigger deficits

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OTTAWA – Finance Minister Chrystia Freeland tabled a budget with higher deficits, higher spending and higher capital gains taxes on individual investors, trusts and corporations, as the Liberals revealed a spending plan they hope will win back younger Canadians that have abandoned their party.

Freeland introduced the budget Tuesday after already having revealed much of its contents in the weeks before. In last fall’s fiscal update, Freeland forecast a deficit of $40 billion for the fiscal year that has just ended, a number she hit.

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But over the next five years those deficits will all be slightly larger than forecast adding up to $10.3 billion more in deficits than originally forecast.

Since they first began pre-budget announcements three weeks ago, the Liberals have said they wanted the budget to appeal to millennial and Gen Z voters. In her budget speech, Freeland said those generations need help given the swift rise in housing costs and other inflationary pressures.

“We want their hard work to be rewarded, as it has been for us. We want them to look forward to the future with a sense of anticipation, not angst,” she said.

Freeland said maintaining a society where Canadians who work hard can get ahead and afford a good life is essential to the country’s future.

“Democracy is not inevitable. It has succeeded and succeeds because it has delivered a good life for the middle class. When liberal democracy fails to deliver on that most fundamental social contract, we should not be surprised if the middle class loses faith in democracy itself,” she said.

The government will spend $480 billion next year, with $54 billion in payments earmarked as debt repayment.

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Freeland also announced new capital gains taxes, levelling higher taxes on capital gains on large companies, trusts and high income earners.

Freeland said she is exercising fiscal restraint, saying the government will trim the number of civil servants, which currently stands at 368,000 people by 5,000 positions over the next four years through attrition.

She insisted the government is looking for ways to save taxpayer dollars.

“It’s not our money. It is the money of Canadians. And they quite rightly expect us to be really thoughtful about what we spend it on,” but Freeland added that at this point Canadians expect to see the government spending.

“I don’t think it is an eccentric view to believe that Canada, a growing country, needs to make investments in our country and in Canadians right now.”

Among the new spending is more money for home building, including tax measures that allow first-time homebuyers to take more money out of their RRSP for a down payment and to delay when they start repaying the money.

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There is also $1.1 billion for interest-free student loans and grants, more funding for the Liberal daycare program and for the first phases of national pharmacare that will cover insulin and contraceptives. There is also funding for a new disability benefit and money for artificial intelligence research.

The Canadian economy is currently giving the government a boost, heading for a soft landing instead of a recession and leading to a better-than-expected unemployment rate and GDP numbers that will give the government more tax revenues to work with.

Freeland also announced new capital gains taxes, levelling higher taxes on capital gains for large companies and people who make more than $250,000 selling stock or property other than their primary residence. The inclusion rate on capital gains realized by high earners, corporations and trusts will be raised from one-half to two-thirds as of June 25, 2024.

Currently, 50 per cent of capital gains profits are taxed, compared to 100 per cent of a person’s employment income. That will remain the case for the first $250,000 of capital gains income, but will rise on income above that level to 66.6 per cent.

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The government estimates it will apply to only 0.13 per cent of personal income tax filers and just 12 per cent of corporations. It is expected to bring in nearly $20 billion in tax revenue to the government over the next four years.

Robert Asselin, a vice-president with the Business Council of Canada, said the amount of money the tax will bring is a clear indicator of the impact it will have on the broader economy.

“When you get $5 billion a year from a tax measure, it’s not targeted to the super rich. It’s targeted at large businesses, (from) entrepreneurs, to innovators, which I think will be very detrimental to the business and investment climate in Canada,” he said.Asselin said when businesses and corporations are taxed heavily on their investments they stop making those investments.

“If you’re taxed further on the profits you can make, then people will not make these investments will not employ people, wages would be lower. That’s the kind of domino effect.”

Perrin Beatty, president and CEO of the Canadian Chamber of Commerce, said better economic conditions could have been used to reduce the deficit, but the government instead chose more spending.

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He said the government isn’t delivering a real plan for economic growth.

“What’s still missing is a clear plan to promote productivity and restore economic growth in Canada. Canada continues to slip further behind our competitors in both of these categories,” he said. “Our lagging productivity and stalled GDP growth means Canadians are becoming collectively poorer and working harder to just remain where they are today.”

Freeland said she doesn’t expect the tax to hurt the business climate, pointing out that capital gains taxes were higher in the 1990s when business investment was stronger than it is today. She said she believed it was a question of fairness.

“The fact is today, with the tax system that we have in place, a nurse or a carpenter can pay tax at a marginal rate, which is higher than the marginal rate that a multimillionaire faces.”

With additional reporting from Catherine Levesque

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