Before grading the federal budget’s effect on your personal finances, let’s first acknowledge what a tough assignment the government had on its hands.
To set the scene, inflation is easing, but still high by the standard of recent decades. Interest rates remain high, and there’s a consensus among economists that a mild recession lies ahead.
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Here’s how the budget navigates these challenges:
The cost of living: C
The Grocery Rebate is a branding flourish on a one-time cash payment to the 11 million low-income Canadians who receive the GST tax credit. The money can be used for anything, but let’s say it goes for food.
The maximum rebate for an eligible household of two parents and two kids would be $467, which is equivalent to a bit less than $9 a week. Milk and an on-sale box of cereal, in other words. Single people without kids will get a rebate of up to $234, while seniors get $225 on average. Modest help at best, but well-targeted to those who need it and unlikely to stoke inflation.
Housing affordability: D
Nothing in the budget directly addresses the fact that houses remain unaffordable for the middle class in many cities. Higher mortgage rates have soaked up almost all the benefit of falling prices over the past 12 months.
The best we can say is that the Tax-Free First Home Savings Account, announced in the 2022 budget, will officially launch on April 1. Expect investment companies to start offering these accounts in the following weeks and months. They’re a must for people saving to buy a home, but do nothing to bridge the gap between income levels and home prices.
High-income households may end up paying more income tax, but prebudget concerns about broader tax hikes have once again proven to be unfounded.
The key tax announcement in the budget fleshes out a previously announced intention to modernize the alternative minimum tax, designed to make sure wealthy people don’t use deductions and credits to pay nearly nothing in taxes. The AMT tax rate would rise to 20.5 per cent from 15 per cent, with an estimated $173,000 exemption for the 2024 tax year. Taxpayers pay the AMT or regular tax, whichever is the larger amount.
Not in this budget: An increase in the 50-per-cent inclusion rate – the percentage of a gain that is taxable – for capital gains. Also left alone were income tax rates and the GST. With a recession looming, tax hikes such as these would be politically hard to defend.
A high mark inflated a bit by previously announced, difference-making policies such as eliminating interest on federal student loans and allowing people to put off repaying these loans until they have an income of $40,000 and up. New is an expansion of Canada Student Grants by up to $4,200 for full-time students, and the flexibility to withdraw more money from registered education savings plans to reflect rising tuition costs.
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The new Registered Education Savings Plan rule would allow $8,000 in investment earnings and government grant money to be withdrawn from an RESP in the first 13 weeks of enrollment in a full-time program, up from $5,000. This money is called an education assistance payment and it’s considered separate from money contributed to the RESP.
Consumer rights: D
Some good ideas here, but a low mark for making only vague promises about actual policy. The government proposes to crack down on junk fees such as surcharges from ticket sellers, hotels and telecom providers; to work toward a framework allowing more home appliances and electronics to be repaired rather than thrown out; and, to explore the implementation of a common charging port for electronic devices.
As well, the federal Financial Consumer Agency of Canada will produce guidelines on lenders providing relief to borrowers facing higher mortgage costs as a result of higher interest rates. Examples include extended amortizations and adjusted payment schedules.
Credit card charges: B+
Good news here for your credit card customer loyalty points. The budget announced commitments from Visa and MasterCard to cut credit card processing fees charged to small business by up to 27 per cent from the current average. This savings should help ease the risk of businesses slapping surcharges on customers paying for things with their credit cards. Surcharges would offset the benefit of customer reward points offered by cards.
It’s expected that banks issuing credit cards under the Visa and Mastercard banners will not devalue loyalty points as a result of the decline in fee revenue from small business.