April 20, 2021
The federal budget includes historic spending to jump-start post-pandemic economic recovery
On Monday, April 19th, Finance Minister Chrystia Freeland presented the federal government’s detailed spending plans aimed at defeating COVID-19, recovering lost jobs and transitioning to a greener, more resilient economy.
The budget outlines the largest peace-time government spending plan in Canadian history, projecting a $354.2 billion deficit for 2020-21, followed by a $154.7 billion shortfall in the next fiscal year. Canada’s debt-to-GDP ratio, a key metric illustrating the sustainability of the deficit and the government’s “fiscal anchor” in pre-pandemic budgets, is forecast to reach at 51.2% this coming fiscal year before steadily declining to 49.2% in 2025-26.
To help pay for this, the budget proposes luxury tax measures starting Jan. 1, 2022 that are expected to raise billions of dollars in revenue, including:
- 3% tax on revenues of large digital companies, which is projected to add $3.4 billion in revenue over five years
- 10-20% tax on luxury cars and personal aircraft with sale prices of over $100,000, or boats for personal use with price tags of more than $250,000
- 1% tax on the value of Canadian properties owned by non-residents, that sit vacant.
What does the budget mean for most Canadians?
In her presentation to the House of Commons, Minister Freeland noted the budget was “about meeting the urgent needs of today and about building for the long term. It's a budget focused on middle class Canadians and on pulling more Canadians up into the middle class. It's a plan that embraces this moment of global transformation to a green, clean economy."
The entire budget is available on the government’s official Budget 2021 website, but at 739 pages, outlining more than 270 initiatives, there’s a lot of information to go through. Here are some of the key highlights that could impact Canadian households, your personal finances, and small businesses across the country.
A national childcare program proposal
The centre piece of the budget is a proposed program aimed at driving down the cost of childcare to $10 per day by 2025-26 and cutting current costs in half by the end of 2022.
Pandemic income support programs extended
The budget proposes to extend the Canada Emergency Wage Subsidy, Canada Emergency Rent Subsidy and Lockdown Support programs, in addition to the recent extension of the Canada Emergency Business Account.
Old Age Security increase for Canadians 75 and up
The government plans to provide a one-time payment of $500 to pensioners who will be 75 or older by August 2021, and then increase ongoing payments by 10% as of July 2022, bringing individual payments to $766 in the first year, and indexed to inflation in the years following.
Interest-free loans for home retrofits
The government is proposing the Canada Mortgage and Housing Corporation distribute $4.4 billion worth of interest-free loans to homeowners planning on retrofitting their homes with more efficient materials. The loans, capped at $40,000, would be earmarked for projects that reduce the carbon footprint of a home, including more efficient energy-conserving windows and doors and high-efficiency furnaces.
Jobs training and hiring programs
The budget sets aside $960 million over the next three years for Employment and Social Development Canada to help retrain Canadian workers. The program is focused on developing job skills that will be needed by small and medium-sized employers as they emerge from the pandemic. $595 million is allocated to a new Canada Recovery Hiring program, which aims to offset some of the costs of increasing wages and hours worked as businesses reopen. The program will be available from June 6 to November 20, 2021 to help company’s increase headcount.
Lowering credit card transaction fees
To further support small businesses, the government is launching consultations with key stakeholders on driving down the price of credit card transaction fees, promising more details in the upcoming Fall Economic Statement.
Tax proposals – unfinished business
The government also intends to proceed with proposals previously tabled in a 2019 budget implementation bill that didn’t pass in the previous parliament, including:
- Prohibiting transfers of commuted values to individual pension plans (IPPs), to help ensure IPPs are not set up in newly incorporated private corporations controlled by people who had terminated employment with their former employers.
- Changes to the “allocation to redeemers” methodology used by mutual funds and ETFs to allocate income and capital gains realized by unitholders could result in increased taxes for clients.
- The introduction of new advanced life deferred annuities (ALDA) and variable payment life annuities (VPLA) under registered plans allowing retirees to move savings out of their registered retirement funds to an annuity deferred until age 85. The tax rules generally require an annuity purchased with registered funds to begin after the annuitant turns 71.
It’s important to remember that in the current minority parliament, the governing Liberal party will need the support of a least one other party to pass the budget, and that many of its proposed measures will be subject to further debate in parliament, and consultation with the provinces and territories. It appears likely the budget will pass with the support of the New Democratic Party, meaning the risk of the government losing a confidence vote on its budget and triggering an election is low at this time. While the impact of this budget and its proposals are likely to playout and evolve over the weeks and months ahead, The Co-operators has products, services and solutions to support you through all stages of life. From retirement planning to new home buyer’s guides, building investment strategies and the benefits of buying life insurance young, our financial representatives are here for you.
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