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Watch: Columnist Rob Carrick explains the proposed tax-free savings account for first-time home buyers and other budget measures designed to make life more affordable for Canadians.

The Globe and Mail

Inflation today is caused by low interest rates, tangled global supply chains, disruptions related to war in Ukraine and the many households eager to spend money after two years of pandemic lockdowns.

A government can’t fix that kind of stuff in a budget, but it has to act like it can. So while the word “inflation” appears 86 times in the document released Thursday, the only fresh, highlighted measure that isn’t connected to housing is coverage for dental care, which starts this year for children under 12 in lower income families.

Housing is where the government will stake its reputation for helping with affordability. There’s an entire chapter in the budget on housing – 24 pages of programs to build more houses, ban foreign investors from buying residential property for two years, tax people who flip homes and help first-time buyers. Front and centre for rookie buyers is the Tax-free First Home Savings Account promised by the Liberals in the previous election.

The appeal of the FHSA is that you get a tax deduction for contributions, as with a registered retirement savings plan. But similar to a tax-free savings account, you also benefit from tax-free compounding inside the account and tax-free withdrawals to buy a home.

This new account is an answer to the practical question of what savings and investing vehicle is best for people getting a down payment together – TFSA or RRSP? Once the FHSA is introduced next year, it will make sense to use it first and then, once you contribute the maximum $40,000, move on to a TFSA.

Note that you cannot use both the FHSA and the federal Home Buyers’ Plan for the same house purchase. The HBP allows you to withdraw up to $35,000 tax-free from an RRSP to buy a first home.

Further details from the budget on HSA: The annual maximum contribution amount will be $8,000, and you will not be able to carry forward unused contribution room to a subsequent year, as you can with TFSAs and RRSPs. You can hold multiple FHSAs, but combined contributions cannot exceed yearly or maximum limits.

There is now a race on to see which financial firms are first to introduce first-time home accounts and what investment options they offer. Stocks are all the rage these days, but they’re a treacherous way to build a down payment for a house you plan to buy within five years. A high-rate savings account would be a safer option, but alternative banks have so far been slow to reflect rising interest rates in the returns they offer.

Although the FHSA is a foundational part of the government’s housing affordability program, it’s hard to see its advantages being enough to counter price increases that lately have averaged 20 per cent compared with last year.

The same applies to the doubling of the First-Time Home Buyer’s Tax Credit to $10,000, which works out to as much as $1,500 for people buying a first home in 2022 and beyond (credits like these get multiplied by 15 per cent to get the net amount). The feds describe this money as helpful for closing costs on a home purchase such as legal fees and moving.

A housing affordability measure introduced previously, the First-Time Home Buyer Incentive has been a bit of a dud, with take-up below expectations. Budget 2022 proposes to extend the incentive until March 31, 2025, and make it more appealing to use.

If the Liberals had produced an austere, cost-cutting budget, it might have helped reduce some of the inflationary froth in the economy. But the party has struck a partnership with the NDP to introduce a socially progressive platform that will require the spending of billions.

An example of these programs is dental care, which will expand next year to those who are under 18, seniors and people living with a disability and be fully implemented in 2025. The program is available to families making less tan $90,000 annually, and there is no co-pay amount for those under $70,000.

The most effective affordability measure from the Liberals could possibly be the deal now signed with all 10 provinces to provide child care at an average of $10 a day. For parents with young children, true financial relief is coming.

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