UPDATE: The federal budget for 2022 has been released. Read the highlights here.
Finance Minister Chrystia Freeland will unveil the 2022 federal budget on April 7, making it the first budget announcement since the 2021 federal election.
What can we expect? Government officials and economists told The Globe and Mail that it will likely be informed by the Liberal government’s spending promises from the election, as well as the new spending promises inherited through the supply-and-confidence agreement with the NDP and a projected increase in defence spending due to the war in Ukraine.
Here’s everything we know ahead of Thursday’s announcement.
When will the 2022 federal budget be announced?
Finance Minister Chrystia Freeland will deliver the 2022 federal budget on April 7 at 4 p.m. ET, the government announced during question period on March 29.
This will mark the first budget announcement since the 2021 federal election.
What will the federal budget cover?
Thursday’s budget is expected to have three principal themes: measures to address climate change, housing affordability and Canada’s role in the world. The latter is a late addition that will see Ottawa boost defence spending in response to Russia’s invasion of Ukraine. It will also include money for cybersecurity to combat foreign disinformation campaigns.
The 2022 federal budget will also be an opportunity for the government to outline how it intends to wind down the massive emergency spending related to the COVID-19 pandemic, while delivering on the billions in promised new spending from last year’s Liberal Party election platform and the recently announced parliamentary co-operation agreement with the NDP.
Other potential items to look for in the budget:
- Housing: The budget is expected to include $10-billion to make housing more affordable for Canadians – as promised during the 2021 election campaign. The Liberals will spend $4-billion to build 100,000 new homes in urban areas by 2025, and $2.7-billion for low-cost and co-op housing. Ottawa will also create tax-free savings accounts to allow first-time home buyers to save up to $40,000, and a rent-to-own program. A source told the Globe and Mail that the budget will also honour the Liberals’ election pledge to impose a ban on foreign home buyers. Rachelle Younglai reports why Ottawa is facing pressure to address Canada’s affordable-housing problem in Thursday’s budget.
- Climate change: Other big-ticket items include $9-billion for a range of climate programs and billions for green economy initiatives, such as clean technology and investments in manufacturing zero-emission vehicles. A source told the Globe and Mail that Ottawa will provide tax incentives to oil and gas companies to invest in carbon capture and storage. Budget measures will also include incentives to increase the use of hydrogen and renewable fuels, and to get Canadians and businesses to shift to zero-emission vehicles.
- Defence: Ottawa will boost defence spending by $8-billion over roughly five years, largely to upgrade the North American Aerospace Defense Command (NORAD) and to buy weapons for Ukraine in its war against Russia. Steven Chase and Patrick Brethour report why Canada’s defence spending could see a boost to fulfill its NATO promises and protect Arctic sovereignty.
- Electric vehicles: The budget will also include about $2-billion on a strategy to accelerate Canada’s production and processing of critical minerals needed for the electric vehicle supply chain.
- Small businesses: The budget could also include a tax break for small businesses. The changes could involve easing the current phase-out rules related to accessing the small-business tax rate. Small businesses currently benefit from a tax rate of 9 per cent on the first $500,000 of active business income, compared to the 15 per cent corporate tax rate.
What is the projected federal budget deficit for 2022?
During the December fiscal update, Ms. Freeland projected that the size of the federal deficit would decline from $327.7-billion in 2020-21, to $144.5-billion in 2021-22 and $58.4-billion for the 2022-23 fiscal year that begins on April 1. That was, however, before the war in Ukraine began and the Liberal-NDP deal was announced.
The massive spending during the COVID-19 pandemic has led to a near doubling of the federal debt, which is projected to reach $1.25-trillion in 2022-23.
Ms. Freeland’s December fiscal update said the debt-to-GDP ratio would decline slightly over the next five years, reaching 44 per cent by 2026-27, despite climbing from 30.7 per cent to 47.6 per cent between 2019-20 and 2020-21.
What will Canada’s soaring inflation mean for the federal budget?
Canada’s inflation rate hit a new three-decade high in February, rising 5.7 per cent from a year earlier. That was the highest inflation rate since August 1991, and it marked the 11th consecutive month that inflation has surpassed the Bank of Canada’s target range of 1 per cent to 3 per cent.
Households are especially feeling the pinch on several fronts. Shelter costs rose 6.6 per cent, the largest annual increase since 1983. Groceries rose 7.4 per cent, the most since 2009. And gas prices jumped 6.9 per cent in a single month.
Russia’s invasion of Ukraine is also fuelling economic uncertainty with the soaring costs of fuel prices and rampant supply chain issues.
Economists say Ottawa will likely benefit in the short term from stronger-than-projected revenues for economic growth, inflation and the higher price of oil – due to strong corporate balance sheets and soaring commodity prices – but those gains will be largely offset by the added spending from election platform commitments and other recent promises. High inflation also helps the government’s bottom line in the short term, even though expected increases in Bank of Canada interest rates are a source of concern over the longer term.
Robert Fife, Bill Curry and Steven Chase report that Ms. Freeland is readying another big-spending federal budget amid fears of rising inflation. Business executives say the risk of pumping more money into an already hot economy could fan inflation even further, forcing the Bank of Canada to further hike rates. “What we can’t afford is another round of new spending that is paid for with borrowed money,” said Canadian Chamber of Commerce president Perrin Beatty.
What does the Liberal-NDP deal mean for the federal budget?
In March, 2022, Prime Minister Justin Trudeau announced an agreement had been struck with the NDP to prop up the minority Liberal government until 2025 in exchange for parliamentary co-operation and progress on key NDP policies, including an income-based dental care program, pharmacare, housing and increased federal transfers to the provinces for health care.
The agreement specifically states the NDP will support four Liberal budgets as part of the deal.
On Tuesday, NDP Leader Jagmeet Singh said he received an advance briefing on the federal budget and expects to see “first steps” toward national dental care and other NDP priorities:
- The March agreement included pledges to launch a new dental care program for low-income Canadians, starting with under 12-year-olds in 2022 and full implementation by 2025.
- It also committed the government to pass a Canada Pharmacare Act by 2023 and provide the provinces with “additional ongoing investments” for health care.
- Mr. Singh said he also expects to see measures that address housing shortages and climate change, given they were also mentioned in the deal with the Liberals.
The recent agreement between the Liberals and the NDP did not include any costing estimates. Though a recent Scotiabank report estimates the Liberal-NDP pact will add another $15-billion to $20-billion over the life of the three-year agreement – and potentially $40-billion by 2027. Meanwhile, according to a report released Tuesday by Desjardins economist Randall Bartlett, the Parliamentary Budget Officer has estimated the NDP’s proposed national pharmacare plan would cost more than $11-billion a year.
What’s the feeling from business leaders?
Many CEOs and senior figures in Canadian business are looking for signs that the government is ready to use Thursday’s federal budget to act on economic policy – not just talk about it. James Bradshaw and Andrew Willis report that top executives are increasingly concerned that Canada is missing a chance to set itself up for long-term success. They worry the country is sending the wrong signals, failing to encourage businesses to spend on expansion and missing out on investments from foreign companies.
“Some of the challenges are ideology challenges,” Royal Bank of Canada chief executive Dave McKay said. “And what we’re hoping to see in the budget is a shift in ideology from tax-and-spend, which does not create sustainable growth, to an incentive to take risks, and innovate, and grow and solve problems.”
“Tax and spend to me is like eating Sugar Pops for breakfast. You feel really good for an hour and you feel crappy by noon, at the end of the day. And that’s what tax-and-spend gives you. It doesn’t give you sustainable prosperity.”
Will Chrystia Freeland continue the tradition of finance ministers buying budget day shoes?
There is an ongoing tradition that states the Minister of Finance should wear new shoes when the federal budget is delivered, a practice that dates back to the 1950s. In 1955, Walter Edward Harris was the first minister of finance to don new shoes on budget day.
Ms. Freeland, the first woman to ever present Canada’s federal budget, continued the tradition during the last budget unveiling on April 19, 2021. She wore black leather pumps from Toronto footwear label Zvelle. For the 2022 federal budget, she chose to wear Canadian label L’Intervalle and unboxed the design on her Twitter page.
With reports from Robert Fife, Bill Curry, Steven Chase, Matt Lundy and Reuters.
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