What the federal budget means for you

Jordan: Just in case you have been under a rock for the last month. You should know our government has been busy assuring Canadians. They understand it’s hard right now and they’re going to do stuff about it. The federal budget they have been telling us will help to make life more affordable, to make housing more attainable and to make many things better. Just listen:

CLIP 1: Vassy Kapelos: The government has already previewed almost 40 billion in spending, about half of-

CLIP 2: Justin Trudeau: this budget we’re working on right now will be focused on both supporting Canadians now-

CLIP 3: Chrystia Freeland: Will be launching a new childcare expansion loan

CLIP 4: Justin Trudeau: As part of our upcoming budget. We’re going to create a Canadian renters- We’re fighting every day to build an economy that helps every generation get ahead, including by taking significant measures to make housing more afford-

CLIP 5: Reporter: Will we see the deficit grow?

CLIP 5: Chrystia Freeland: No.

Jordan: It is one thing to tease what is in an upcoming budget and to tell Canadians how awesome you think all those things will be. It is another to actually deliver those things to produce the numbers and the details and have people like economists dig into that and determine how much of a difference your super awesome budget will actually make to Canadians who are struggling to pay the bills. Yesterday that bill came due, the budget came out, and today we’ll find out is this budget going to help you? Where and how much? I am Jordan Heath-Rawlings. This is The Big Story. Jim Stanford is an economist and the director of the Center for Future Work. He is somebody we call when we need to translate big economic terms into things that impact people’s wallets. Hey, Jim.

Jim Stanford: Jordan, how are you?

Jordan: I’m doing really well. I’m glad to talk about this with you because this is the affordability budget, right?

Jim Stanford: That’s what they call it. Yeah.

Jordan: Let’s start with this then. They’ve been saying that and promising affordability help in this budget for at least a month now as they’ve kind of made announcements here and there. But before we get into specifics, broadly speaking, how would you grade this budget for the average Canadian who is struggling with their bills right now?

Jim Stanford: Well, I’d give it a B. To be frank, this budget isn’t going to solve the affordability problems that most Canadians are experiencing and nor should we expect it to. Most of those problems have very little to do with government and everything to do with how the economy is doing and what companies are up to and what prices we’re paying, and those things are all beyond the direct control of government. So I think there’s a suite of measures in this. None of them game-changing, but all of them will offer incremental help to different groups of Canadians and taken as a whole, I think this budget will make an important positive difference.

Jordan: We’ll get into what those things are, but first, you said nothing in here was a game changer. Was there one bigger thing that maybe stood out to you as something that Canadians will really feel in their finances, either positive or negative?

Jim Stanford: Well by far the biggest attention and the most power, if you like in terms of dollars in the budget is directed towards the housing issue, which is obviously a crisis affecting anyone who’s trying to buy a house or trying to rent an apartment across the country. We’ve just seen a terrible upsurge in housing costs. So there’s really 15 to 20 different measures under that umbrella and all told, it’s, I would say, a generational intervention by the federal government in an area that isn’t typically seen as federal jurisdiction. But the government heard that Canadians are very upset about housing and worried about it for themselves and their kids, and so I think that is the most important part of the budget. Now, most of those measures were announced in various photo ops that top ministers have been having across the country in the last few weeks. So there weren’t any giant surprises there, but seeing them as a whole with dollar signs attached to them certainly stands out as the most important aspect of the budget, and not overnight by any means, but eventually I think it will make a difference to the housing challenges we face.

Jordan: And the housing policy is so massive that we are actually going to spend another episode of this podcast breaking down to your point, all the 15 to 20 measures in there. So we’ll talk about that more broadly maybe with you today. But as you mentioned, as I mentioned off the top, it’s been announced in dribs and drabs over the past few weeks. This is still a massive document for Canadians who have been paying attention to those announcements and kind of expected this housing stuff. What’s actually new in this budget that kind of caught your eye as you looked through it.

Jim Stanford: The thing I was not expecting, Jordan, was what they did on the capital gains tax measures. So on the revenue side.

Jordan: Explain that to us. How does that work?

Jim Stanford: Well, a capital gain is what happens when you buy something and sell it for more than you paid. So you haven’t actually done anything, you haven’t produced anything. You haven’t done any work in an economic sense either through good judgment or sheer luck or just riding the coattails of an inflating stock market. You ended up with an asset that got more valuable over time. In fact, Jordan, if you want to play derivatives, you can actually get a capital gain out of a falling market if you short a stock and end up with more money at the end that way. So the idea is that right now we’ve got an incredibly favorable system that preferences, capital gains as a form of income. We have a partial inclusion system where people who make capital gains and the vast majority of capital gains are captured by very high-income people. They only have to declare half of that gain on their income tax, which is a sweet deal. If you flip burgers for a living at McDonald’s, all of your income counts on your income tax. If you flip stocks and bonds, to make a speculative profit, you only have to declare half, which I think there’s a moral issue there, but there’s also an economic issue in the sense that it’s an incentive for speculating on stuff, whether you’re flipping houses or buying and selling fine art and Banksy paintings or whatever else, you’re not actually encouraging production directly. So I think equality advocates for years, myself included, have said this is a ripoff for most people. It’s a very concentrated benefit that’s captured by high-income people, and the government now has decided this is the moment to try and roll back some of that. So with some exceptions, they’re going to change that inclusion rate from 50% to 66%. That’s two thirds instead of half. That’s frankly lower than it used to be. We used to have a 75% inclusion rate in Canada, and the first million and a bit of capital gains over your lifetime are tax free, and that will continue. And so the 66% rate will only apply to people who get over a quarter of million capital gains in a given year. And believe me, that’s not you and I. So all told, I think this is a significant change. They do get some decent revenue out of it that will help to pay for some of those other things that they’re doing, but maybe the politics of it are more important. It’s a tax measure clearly targeted, not just to the top 1%, but really the top one 10th of 1% of Canadians are the ones who are going to be experiencing higher taxes because of this measure.

Jordan: How do you think that’s going to go over in the business community and with large-income Canadians? I think it’s already, as we speak on Tuesday night, the most controversial thing in this budget.

Jim Stanford: Well, the number of people directly affected by it is quite small. They estimate about 40,000 taxpayers, so about one 10th of 1%. And you’re going to hear from folks, CEOs and top bankers and business lobbyists who are among those 40,000. So we’ll have to take their complaints with a grain of salt. Many of them have got personal skin in the game, whereas the vast majority of Canadians don’t. There is an argument that business makes that if you tax capital gains higher than businesses will invest less. And frankly, I don’t buy it. Most of the capital gains paid are on speculative assets, not people starting a company or doing something actually productive. In fact, at the same time, the government’s taking with one hand but giving with another. They’ve got a new entrepreneurship incentive they call it, whereby if you actually did start a business, now you get an additional $2 million capital gains free on any gains that you make. So the argument that this is going to slow business investment or hurt our productivity or so on, I think is very self-serving, coming from a small group of people who are among the tiny proportion of our population who will actually pay something more because of this. The vast majority of Canadians, 99.9%, literally that’s not an exaggeration, will pay nothing because of this tax.

Jordan: Well, let’s focus on that 99.9% then. And you mentioned housing, and I know it’s the biggest thing. It’s something that will take time to fix, especially when it comes to new builds. What are some things in this budget that people will notice in the short term, in the sort of months to year out of this?

Jim Stanford: Yeah, the housing measures, by and large, you won’t notice. There’s a couple of changes to some of the mortgage lending rules that people will be able to take advantage of quickly, but I don’t think those will have much impact. And the bigger programs like loans for apartment building and using Canada Lands that is federally owned lands to build new housing on, or an idea I thought was really creative, is that they’re going to spend a billion dollars over 10 years to convert federal office buildings into housing with the work from home phenomenon and so on. There’s a glut of office space out there and there’s growing interest in converting them to apartments. So there’s the federal government itself getting in on that. So all of those I think are encouraging, but they’re going to take years. The things on the affordability front, Jordan, that I think people will feel more quickly will be some of the, I would say, sort of social program innovations that we’re seeing. We’ve heard about the pharmacare program that there is money now in the budget for that. So two drugs initially, birth control and diabetes drugs will be provided free through that. So that’s interesting and that’s going to hit millions of Canadians. The dental care thing that’s rolling out we’ll soon cover 9 million Canadians. The disability benefit, the Canada Disability benefit, which has been talked about for a few years, finally has some money in it, not a whole lot. It’s going to be $200 a month for people with a disability that prevents them from working. But I think that’s a step towards something that can be expanded down the road and will help us eliminate poverty among people with disabilities. So I think those are some of the things that we’ll start feeling. And no single one of them is a magic bullet, but taken together, most Canadians will get something from one of those new programs, and I think that will be interesting and certainly ease a bit the cost of living challenges that people are feeling.

Jordan: How much is this budget going to cost? And this is something a couple of us have talked about is should we really care how government affords this stuff? When it’s Canadians that are feeling a pinch, do we really care that much about how balanced this budget is?

Jim Stanford: Well, frankly, if there was a non-story in this budget, it is the deficit. There is virtually no change in the deficit and the deficit forecast, which is interesting despite the spate of new programs that the government has announced in recent weeks and a couple of new ones in the budget today, no change in that deficit profile, and that’s partly because of the new revenue that will come in from the capital gains tax that I mentioned. And they’ve also got higher tax tobacco and vaping products. That’s kind of chump change in the big picture, but most of the work, if you like, is just being done by the economy per se. And so the growth in the economy and of course inflation itself, a bit of a dirty secret- governments actually benefit from inflation while the rest of us are cursing it. Government revenues in an inflationary environment like now tend to increase a bit faster than their expenses. And we have seen, I think through a combination of stronger than expected economic performance. Many economists expected a recession this year, but that hasn’t happened, and the forecast and the budget doesn’t expect one, and they see growth picking up next year, which is a good sign. And combined with higher prices means the government revenue profile is stronger than expected, and that’s where most of the money is coming from. So I think for some of the government’s critics who have been focusing on that deficit issue, the budget today in a way, neutralizes that there’s really hardly any news there at all. The numbers are almost exactly the same on the bottom line as they were last year.

Jordan: What about smaller items? I know you mentioned the pharmacare program, and that’s not exactly small, but things that are even smaller than that that are just interesting and things that people should note as they look at their finances going forward, or even just as they walk around in Canada. What will this budget change?

Jim Stanford: Well, again, there’s such a range of different initiatives aimed at different, obviously targeted voter blocks, essentially. One of them I think that’s interesting is this focus on young people in the budget. Now, I think the Liberals traditionally took for granted that they would be supported by young people more so than the conservatives anyway. I think youth support is probably strongest for the NDP and the Greens, but the Liberals would position themselves as appealing to youth and modern generation, et cetera. But they have seen some of that youth support get siphoned off towards the conservatives, and so they clearly made an effort in this budget to address youth issues. So here’s an interesting one that I didn’t see coming. I hadn’t heard about: an initial $500 million for a youth mental health program to try and get extra support for young people to access mental health services. Anyone who’s had someone in their family with mental health challenges knows how hard it is to get counselling support or medical support and other types of help during a terrible time. So that’s an interesting initiative. Also, some new money for grants and loans for students going to college or university combined with a part of the housing program is obviously aimed at young people too. Some special grants for young people trying to get into the market, but more relevant I think will be some protections for renters. Most young people, of course, are renters. So I thought that was an interesting twist to see how they’re trying to put together a package that would appeal to the millennial generation of voters and I guess try to shore up their support among younger Canadians.

Jordan: I know you’re an economist and not a political analyst, but since you mentioned where the government is coming from this, what impression do you take away from this budget about what this government thinks of its own political situation and how it’s trying to maneuver?

Jim Stanford: Well, clearly there’s an element of desperation that has motivated the government to come out big with, first of all, so many different initiatives and as much real money behind them as they have provided. And again, despite that, they’re able to meet their previous deficit targets. So we’ve all seen the polls and Mr. Pollievre is far ahead of the liberals at this moment, and an election is coming up in 18 months. So clearly the political pressure is motivating the government to both try to do more to help Canadians and be seen to be helping Canadians, but also in a kind of strategic way that they hope will neutralize some of the attacks that they’re getting from the Conservatives. So the Conservatives certainly have been exploiting the anger over the cost of living and the housing crisis and so on, trying to blame government for big spending and causing inflation and high interest rates, which frankly is a far-fetched story in economic terms. But politically, it’s been beneficial for the Conservatives. And so now you see the government responding and saying, well, we are actually going to do something about these cost of living pressures and the housing situation with, by the way, a budget that spends a little bit more than it did before. So I think they have set up a fairly clear contrast between their approach to these issues and the Conservatives, and clearly that’s been motivated by the political pressures the government feels.

Jordan: We’ve talked a lot about affordability measures, what’s ambitious in this budget? I hear that there is a significant amount of money maybe set aside for artificial intelligence, which is an interesting thing to put in a federal budget.

Jim Stanford: Yeah, it is. And Jordan, I just hope that section of the budget was written by a human being and not ChatGPT.

Jordan: Right

Jim Stanford: But they have put a couple billion dollars towards supporting mostly the development of super computers in Canada that all the AI programmers need. These massive computers to show that their coding actually makes a difference. And we’re, I’d say, behind the curve internationally on that, and they’ve put some money into that, they’ve also put extra money into other forms of research, both commercial research and university research and so on. So on the technology and innovation front, I think they recognize that there’s more to be done in Canada, and I think both those initiatives will be helpful.

Jordan: This is the last thing I’ll ask you, and maybe I should have asked it off the top, because you mentioned how many different things are in this budget and a little something for everybody. How does this budget compare to a traditional budget, whether that is by a conservative or a liberal government or just even previous budgets by this government?

Jim Stanford: Well, I mean, this government since 2015 when Trudeau was first elected has, I would say generally been active in its budgets. And initially that was through changing some of the tax parameters, for example, the middle class tax cut and the increase in taxes for the highest income category and some on the social and environmental policy front, for sure, the National Childcare Program, et cetera. So I think in a way there’s a bit of continuity between what this government’s been doing and what it’s done now, but clearly they’ve shifted the focus and the framework for this. The last budget had a lot of initiatives in it aimed around climate change and the energy transition and the big ambitious programs to build clean energy industries in Canada. Now they’ve seen in the last year the politics and concerns of Canadians change, and the budget has changed its focus accordingly. So in a way, without glorifying it, I’d say this is democracy in action. Both all the major parties have a sense that Canadians are angry about the cost of living. They’re very angry about what corporations are charging them in prices. They’re very worried about housing for themselves and their kids. And so this budget has responded to those concerns, and I expect the opposition parties, both the Conservatives and the NDP, in English Canada are going to be trying to take their own response to the same sorts of concerns that Canadians have expressed. So this budget isn’t going to fix the problem for sure, but it’s going to help a lot of people incrementally, and I think it shows that in Canada, our democratic system works enough that governments listen to Canadians and respond when we’re pissed off about something.

Jordan: That’s a perfect way to put it. Thanks, Jim.

Jim Stanford: Thank you very much, Jordan.

Jordan: Jim Stanford, economist and director of the Center for Future Work. That was The Big Story. For more from us, including previous episodes with Jim, you can head to The Big Story podcast.ca. You can always send us feedback, positive, negative, indifferent, whatever you like. The way to do that is via email hello at The Big Story podcast.ca, or of course, giving us an old-fashioned phone call. The number is 416-935-5935. We won’t actually answer the phone, but you can leave a voicemail and rant for as long as you require. Thanks for listening. I’m Jordan Heath-Rawlings. We’ll talk tomorrow.