No budget bump | Commentary

By Dave Wilkin

The recent Canadian Federal budget was heavily promoted across the country by PM Trudeau and his ministers weeks prior to budget day, and it continues. Yet, according to recent polls, there has been no budget bump for the Liberals. Instead, support continues to erode as the Conservative lead has grown to over 20 points. The response to the budget was underwhelming, and according to an Ipsos poll, the number who called the budget bad outnumbered those who rated it good by over two to one. In response, we now see PM Trudeau attempting to manage expectations, saying the uptick in national support hoped for now won’t happen until next year. 

Is that likely? In my view, it’s not.

According to a recent Abacus poll, rising costs and housing affordability are the two top issues. Note that in that poll, the Liberal government’s signature file, climate change, didn’t even make the top five. Little wonder then to see the budget’s main focus was on these top issues and, in particular, their impacts on the younger generations. 

On housing, the budget earmarked $8.5 billion in new spending to help address the roughly 3.5 million home shortfall the CMHC forecasts by 2030 (about 45 percent is in Ontario). That works out to about $2,400 per home, which, using the current average national home price of $710,000, represents just 0.34 percent of the cost. For context, national new home building inflation was 6 percent last year. 

Other budget measures also targeted housing affordability, including 30-year mortgages and an increase in the amount that can be borrowed from RRSPs for first-time new home buyers. Both of these will do little to boost affordability, but they may increase demand in a supply-constrained market, putting even more upward pressure on prices. They also come with consequences for purchasers’ financial future.

Most Canadians know that Liberal immigration policy drove Canada’s rapid population growth, which expanded 1.3 million in the past year alone while placing Canada near the top growth rate globally. It also pushed a tight housing market deeper into crisis. In Ontario, house prices doubled in just eight years. 

There are no quick fixes, and certainly not by next year. Most Canadians have figured out that the budget will have no material impact on boosting housing supply and affordability.

The government also attempted to project some budget fiscal discipline by paying for its big spending increases with an increase in capital gains taxes. Trudeau characterized it as targeting the ultra-rich, claiming that it impacted just 40,000 Canadians. That turned out to be false. It will impact millions of Canadians who own investment/vacation property and over 1.3 million corporations, including doctors that incorporated. In total, it probably ticked off well over a third of Canadian voters, including many Liberals. The vast majority of them probably do not consider themselves to be ultra-rich, and many likely found it insulting. It’s also widely seen as yet another headwind for entrepreneurism and business investment. 

The government is hoping that increased spending will help ease the pain of high and still rising costs. But when combined with growing provincial/municipal government spending & deficits, it’s making the Bank of Canada’s goal of lowering interest rates to ease the economic pain from elevated debt levels much harder.  

Lastly, noticeably absent from the budget was a focus on improving productivity and lagging business investment. The Bank of Canada calls it an emergency, and without improvements, Canadian prosperity will continue to erode.

It’s little surprise then that the budget didn’t improve Liberal polling. It’s hard to understand why they thought it would. Desperation perhaps?

This is a guest commentary by Dave Wilkin

Dave Wilkin is a Professional Engineer, with a master’s degree in Electrical Engineering from the University of Toronto. His career spans over 40 years in Information Technology, banking, energy, and consulting. A former resident of Huntsville, Ontario, he now lives in Burlington but still spends time at his Huntsville area cottage.

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