Navigating through Uncertainty
Deputy Prime Minister and Minister of Finance Chrystia Freeland tabled the Federal Budget on April 7, 2022. This is the first budget released from the Liberal government since they announced the Liberal-NDP partnership. The budget announced a number of new spending initiatives, as was expected, with the stated intention to help Canadians weather the economic uncertainty. These initiatives add up to an annual deficit of $114 billion and bring the accumulated debt to $1,161 billion. This deficit comes at a time following a deficit at a record level due to large increases in government spending during the pandemic.
National deficit
- 2021-22 Projection—$113.8 billion
- 2020-21—$327.7 billion
- 2022-23 Projection—$52.8 billion
National debt
- Federal debt—$1,160.8 billion (projected to be $1,213.7 billion in March 2023)
- Federal debt as a percentage of GDP— 46.5% (projected to be 45.1% in March 2023)
Budget measures summary
The budget contained many announcements of new spending initiatives. Housing affordability was a primary theme with $10 billion announced to be spent over the next five years. These measures are intended to help increase housing inventory and affordability. Canadians will not be eligible for the principal residence exemption, subject to limited exceptions, if the house is not owned for at least 12 months in order to prevent house flipping. The government will also be implementing a new Tax-Free Home Savings Account allowing Canadians under 40 to save up to $40,000 for their first home. This also includes $4 billion to help municipalities update their zoning and permit systems to allow for speedier construction of residential properties to combat the low supply level of homes for Canadians.
One significant measure to help small and medium enterprises is the increase in the eligibility of the small business deduction for businesses with taxable income up to $500,000. SMEs currently with taxable capital up to $10 million are eligible for the full small business deduction and it is reduced when capital increases to $15 million and eliminated over that level. The change is beneficial to SMEs with taxable capital over $10 million and up to $50 million by allowing them to benefit from the reduced federal corporate tax rate of 9%. It is then eliminated if capital is in excess of $50 million.
Tax increases were targeted at banks and life insurance companies who made significant profits during the pandemic. The increase is in the form of a one-time tax of 15% on profits in 2021 over $1 billion as well as an additional increase in the tax rate of 1.5% in future years.