Federal Budget 2024

“FAIRNESS FOR EVERY GENERATION”

OVERVIEW:

This afternoon at 4pm, Canada’s Finance Minister, Hon. Chrystia Freeland tabled the Liberal government’s 2024 Budget entitled “Fairness for Every Generation”. This represents the third Budget for the minority Liberal government that is being conditionally supported by the NDP through their “Supply and Confidence Agreement.” Should the agreement that was struck in 2022 hold, today’s Budget means that the Liberals will have one more Budget to introduce before the general election takes place in the Fall of next year.

With polling trending down for the Trudeau Liberals over the past several months (with this CTV Nanos poll from April 3rd putting them at 12 percentage points behind Opposition Leader Pierre Poilievre and the Conservatives), this budget very much felt like an important opportunity for the Trudeau government to slow and potentially reverse negative public sentiment. Over the past several months, media has been questioning whether Trudeau will step down as Leader to improve the party’s popularity. There has also been rumours of the NDP walking away from their agreement with the Liberals to trigger an early election. Meanwhile the Conservatives have been running a tight, opposition style-campaign that has focused on voicing increased resentment for cost-of-living increases. Heading in to today’s budget, most feel that the Conservatives would form a majority government if the polls are to be believed, and if an election were held today.

The Liberals, for their part, appeared to understand the troubling political climate for their party, and in response executed a series of high-profile, campaign style pre-budget announcements over the past couple of weeks – a strategy usually designed to maximize public attention to some of the more expensive and ‘flashy’ commitments. These announcements were not only designed to demonstrate Trudeau’s interest in remaining Prime Minister, but to signal that the government is not out of touch, and understands its responsibility to address some of the core concerns of Canadians in a more direct way.

Indeed, “big” pre-budget announcements that received the most attention focused on the $2.4 billion in support for the artificial intelligence industry, and the pledge to build 3.87 million homes by 2031 through a new Housing Strategy. Other announcements, including the somewhat ‘off brand’ commitment to boost Canada’s military, and others designed to address what has become the number one election issue – affordability – and to win back previously core Liberal voters such as young people was the common thread for the pre-budget circuit.

In terms of Canada’s books and the Liberal’s fiscal approach to the changing economic dynamics in the country (including the fear of an imminent recession), Trudeau’s budget was expected to continue the Liberal trend of deficit spending – a philosophy that the government has loyally subscribed to since first forming government in 2015. With the COVID recovery period and the threat of a deep and long recession abating, the voice for fiscal restraint continues to gain momentum in the public. In response to this, the Liberals did try to be more clear with how many of these larger programs were going to be paid for. Perhaps most notably, and as was leaked in the run-up to today’s Budget, the government will be increasing taxes on “wealthy Canadians.”

Inflation and affordability has been a focal point for the media and for Trudeau’s political opposition for some time. Poilievre and the Conservative party has successfully linked the two economic issues (inflation and affordability) and has used this as the principal way to attack Trudeau’s leadership. With inflation still above the Bank of Canada’s target, deficit spending has the risk to not only keep the Central Bank from cutting interest rates, but also add ammunition to fiscal conservative arguments in the run up to next year’s election. In recognition of this liability, Freeland had previously promised that this federal Budget would respect parameters put in the Fall Economic Statement of 2023, that the federal deficit would stay under $40 billion for this fiscal year. Today’s Budget suggests that she has kept that promise, as it came in just under that threshold at 39.8 billion. Also committed to in the Budget was to keep the deficit below 1% of GDP beginning in 2026-27 and lowering the debt-to-GDP ratio in 2024-25 relative to the projection.

It remains to be seen how effective Trudeau’s approach to this Budget cycle will be in terms of putting the Liberals back on the political radar of most Canadians. Winning back core supporters, and drawing a more stark contradiction to Poilievre’s style of leadership and vision of Canada will no doubt be the focus for this government as we head in to the summer recess, and then the Fall.

TOPICS:

The following provides a brief summary of the most relevant new proposals under the 2024 federal budget. They have been organized by subject area. As always, if you are interested in more detail and context under each of these announcements, please reach out to your S&A consultant.

TAXATION

  • Capital gains tax increase – intention to increase the inclusion rate on capital gains realized annually above $250,000 by individuals and on all capital gains realized by corporations and trusts from one-half to two-thirds, effective June 25, 2024. Principal residence exemption remains.
  • Canadian Entrepreneurs’ Incentive – a reduction to the inclusion rate to 33.3 per cent on a lifetime maximum of $2 million in eligible capital gains.

HOUSING

  • More homes – the Budget commits the government to building 3.87 million new homes by 2031
  • 30-Year Amortizations for First Time Buyers of New Builds – the budget will allow 30-year mortgage amortizations for first-time home buyers purchasing new builds.
  • Home Buyer’s Plan – increasing the withdrawal limit from $35,000 to $60,000, and extending their RRSP repayment term by an additional three years.
  • Review of federal lands portfolio to identify more land for housing
  • Public Lands Acquisition Fund – a $500M, 5-year fund provided to Public Services and Procurement Canada to purchase land from other orders of government.
  • Federal Lands Initiative – $112.6 million over five years for the Canada Mortgage and Housing Corporation to top up the program, and unlock more federal lands for affordable housing providers.
  • Taxing vacant lands – the Budget proposes to consider introducing a new tax on residentially zoned vacant land.
  • Apartment Construction Loan Program – an additional $15 billion in new loan funding, starting in 2025-26 to build more than 30,000 additional new homes.
  • Housing Accelerator Fund – an additional $400 million over four years for the CMHC program to fast track 12,000 new homes.
  • Canada Housing Infrastructure Fund – $6 billion over 10 years for a brand new Fund to accelerate the construction and upgrading of housing-enabling water, wastewater, stormwater, and solid waste infrastructure.
  • Homebuilding Technology and Innovation Fund – $50M over two years to Ngen to administer this new program focused on supporting building technologies.
  • Regional Economic Development Agencies – $50M over two years for REDAs to support local innovative housing solutions such as designing and upscaling of modular homes, the use of 3D printing, mass timber construction, and panelized construction.
  • Adding Additional Suites to Single Family Homes – $409.6 million over four years to the CMHC to launch a new “Canada Secondary Suite Loan Program,” enabling homeowners to access up to $40,000 in low-interest loans to add secondary suites to their homes.
  • Affordable Housing Fund – $976 million over five years to the CMHC to launch a new Rapid Housing stream under the Fund to build affordable and supportive housing and shelters.
  • Canada Greener Homes Affordability Program – $800 million over 5-years to launch a new Canada Greener Homes Affordability Program that will support energy efficiency retrofits for Canadian households.

ENVIRONMENT / ENERGY

  • Clean Fuels Fund – retooled funding delivery process, and an extension of the fund to 2029-2030. In total, $776.3M will be made available. CFF will move to a continuous intake process.
  • Canada Infrastructure Bank – $500M being made available in biofuels production.
  • Clean Electricity Investment Tax Credit – the design and implementation details of this ITC were outlined in the Budget, and includes eligibility profiles for generation systems using energy from wind, solar, water, geothermal, waste biomass, nuclear, or natural gas with carbon capture and storage.
  • Clean Hydrogen Investment Tax Credit – government is committing to introduce legislation soon.
  • Clean Technology Manufacturing Investment Tax Credit – legislation will be tabled soon.
  • Canada Growth Fund – expanding their range of contracts for difference (CCFDs).

ECONOMIC DEVELOPMENT & INDUSTRY

  • New AI Compute Access Fund – $2 billion over five years, staring in 2024-25 to launch a new AI Compute Access Fund, and Canadian AI Sovereign Compute Strategy.
  • AI Start Up Support – $200 million over five years, starting in 2024-25, to boost AI start-ups to bring new technologies to market, and accelerate AI adoption in critical sectors. This support will be delivered through Canada’s Regional Development Agencies (such as Feddev Ontario).
  • AI Assist Program – $100M over five years, starting in 2024-25, for the NRC’s AI Assist Program to help Canadian SMEs build and deploy new AI solutions.
  • $50M over four years, starting in 2025-26, to support workers who may be impacted by AI, such as creative industries.
  • Existing programs:
    • SR&ED – $600M over four years starting in 2025-26.
    • Regional Development Agencies – $158.5M over two years for the Regional Economic Growth through Innovation program.
    • Capital Cost Allowance – the Budget proposes to allow businesses to immediately write off the full cost of investments in patents, data network infrastructure equipment, computers, and other data processing equipment. $725M is being made available for this.
  • EVs and EV Infrastructure:
    • New EV ITC – a new 10 per cent Electric Vehicle Supply Chain investment tax credit (ITC). The ITC would be available as of Jan. 1, 2024. Updates will provided in the Fall Economic Statement in 2024.
    • Incentives for Zero-Emission Vehicles Program – this program is receiving a top-up of $607.9 million to extend the program by two years starting in 2024-2025.

NATIONAL DEFENCE

  • Increase defence spending-to-GDP ration to 1.76 per cent by 2029-30.
  • Capital Investment Fund – $1.2 billion over 20 years to support ongoing procurement of critical capabilities, military equipment and infrastructure.
  • CSIS – $655.7 million over eight years and $114.7 million ongoing to enhance capabilities of CSIS.
  • Polar Continental Shelf Program – $46.9 million over five years to renew the program and support northern research logistics;
  • Ukraine Support – $2.4 billion in loans for 2024 so Ukraine can continue to deliver for its citizens.
  • Veteran Family Telemedicine Service Pilot – $9.3 million over five years to extend and expand the program by another three years.

HEALTH / SOCIAL PROGRAMS

  • National Pharmacare Plan – $1.5 billion over five years to Health Canada to launch the plan.
  • Canada Disability Benefit – $6.1 billion over six years, and $1.4 billion per year ongoing.
  • National School Food Program – $1 billion over five years to Employment and Social Development Canada to expand access to school food programs.
  • Child Care Expansion Loan Program – $1 billion in low-cost loans and $60 million in non-repayable contributions to public and not-for-profit child care providers to build more child care spaces and renovate existing centres.
  • Safe Long Term Care Act – commitment to introduce a new bill that would support new national long-term care standards to help ensure safe, reliable, and high-quality care, and improve infection prevention and control practices.

RECEPTION:

With a general election assumed to be coming in 18-20 months, this Budget was delivered on the backdrop of heightened political angst. Pierre Poilieve, now the established leader of the Conservative opposition has had time to make himself known and to establish a brand. Hon. Jagmeet Singh and the NDP are weighing the political consequences of propping up the Liberals with their “Supply and Confidence” agreement and making the associated calculations.

Predictably, the Conservatives focused on the $38.9 billion deficit figure, the $52.9 billion in new spending, and the debt servicing charges to criticize the government for fueling inflation and the cost-of-living concerns that more and more Canadians are having.

The NDP criticized the Liberal budget for not going far enough on eliminating corporate greed. The party suggested that corporate income taxes should have gone up, and that more needed to be done to reign in grocery companies and telecommunication companies who the NDP feel are to blame for the cost-of-living increases.

ADVICE:

Stakeholders of the federal government would be wise to incorporate the sensitive political backdrop with which they are trying to negotiate for their interests. Helping the sitting government address issues that they feel are critical to their political fates (housing, affordability, etc.) would be a good way for them to prioritize your proposals. In addition, stakeholders should be more vigilant in engaging with opposition members to raise the profile of your organization and to establish yourself as an asset to each party as they now turn their attention to platform development and generation election campaign commitments.

Much will be made of the spending in this budget. At almost $53 billion in new program spending, there is are lot of priorities that this government is looking to address. Housing and the new artificial intelligence programs make up most of the new spending, and are areas that S&A Strategies has a specialization. Accessing government resources through competitive or non-competitive funding programs requires a strategic approach, and is an area that S&A Strategies has a good deal of experience.

As always, S&A Strategies is here to help. We welcome any inquiries related to these new programs, and are happy to discuss any time.