Finance Minister Chrystia Freeland is set to unveil a pandemic budget that includes an extension of wage and rent subsidies through to September, $100-billion of new stimulus money for housing, transit and green technology, and sets the stage for a national $10-a-day child-care program.
The stimulus program will also have a heavy focus on small and medium-sized businesses, including a new hiring incentive launching in June that employers can use to either hire new workers or increase the hours of existing employees. The incentive would cover up to about $1,100 in pay per employee every four weeks.
In addition, Ottawa plans to set up a venture-capital fund to spur economic growth and provide additional financial aid to the country’s hard-hit tourism, hospitality and small-business sectors, according to four federal sources. The Globe and Mail is not identifying the sources because they were not authorized to publicly discuss budget details.
Ms. Freeland’s first budget will include tax incentives to help small businesses adapt to e-commerce and expand, sources say. Business support programs will be divided into two streams: Small businesses will have access to grants to buy technology and will receive advisory support and training, while medium-sized businesses will have access to more in-depth private-sector advice and zero-interest loans.
The government expects these measures will benefit 160,000 small and medium-sized businesses over four years.
The government also plans to launch negotiations with credit-card companies in an effort to reduce the swipe fees that merchants must pay. Retailers have complained that these costs have increased dramatically during the pandemic because of the rise in online shopping and the declining use of cash.
The budget is expected to include new limits to the stock-option deduction for high-income executives at large corporations. Reuters reported Sunday that the budget will also impose a luxury tax on yachts, expensive automobiles and private aircraft, which is in line with a pledge the Liberals made during the 2019 election campaign.
Money for housing is expected to be part of the budget’s centerpiece: the Liberal government’s plan for supporting an economic recovery once the worst of the pandemic is over. Ms. Freeland said in November that the budget would include a stimulus plan worth between $70-billion and $100-billion over three years. Sources said the stimulus package will be $100-billion.
Cities are hoping for billions in new funding through a recently launched program that aims to quickly create new affordable housing units through various means, including purchasing and converting struggling hotels.
The federal program currently has a budget of $1-billion but the Federation of Canadian Municipalities (FCM) has urged Ms. Freeland to increase that to $7-billion. The all-party House of Commons finance committee endorsed the recommendation in its prebudget report, saying the $7-billion would create no less than 50,000 new housing units and that Ottawa should send the money directly to municipalities.
“We’re really hopeful,” said FCM President Garth Frizzell. “The signals seem good, but I can’t rely on signals. We’re really eager to see what they have to say [in the budget.]”
The sources said the budget will include incentives for first-time homebuyers as well as significant tax credits to encourage people to make their homes more energy efficient.
As the spike in people working from home creates commercial vacancies in urban cores, sources say new measures will support renovations by homeowners and landlords. That is expected to generate spinoff benefits for domestic manufacturing of products such as windows, doors and other building materials.
The government is expected to announce a national tax to curb foreign speculation in Canada’s housing market, along the lines of tax initiatives for vacant properties in British Columbia and Ontario.
Monday’s budget will also contain new measures to boost urban transit, which the sources say could encourage municipal rezoning to revitalize key areas along transit routes.
The size of the $100-billion stimulus plan has generated skepticism, however, from the International Monetary Fund and the Parliamentary Budget Officer, who have questioned whether additional deficit-financed spending of that magnitude is truly needed.
Monday’s document will be the first federal budget in more than two years. When Ottawa released its prepandemic 2019 budget, Ottawa’s finances were on track to post five years of deficits all under $20-billion a year. The federal debt-to-GDP ratio was also projected to hover around 30 per cent during that period.
Ms. Freeland’s Fall Economic Statement revealed how the pandemic has altered those forecasts dramatically. That document estimated that the 2020-21 deficit could approach $400-billion, followed by deficits of $121-billion and $51-billion.
It also said the debt-to-GDP ratio would rise to around 50 per cent over the next five years, before accounting for stimulus spending. In dollar terms, the November update said the federal debt will double from $721-billion in 2019-20 to $1.4-trillion by 2024-25, before accounting for stimulus.
Some critics have urged Ms. Freeland to announce a clear fiscal anchor in the budget – such as a target and timeline for shrinking the deficit and lowering the debt-to-GDP ratio. However, the November update said the budget will focus on fiscal “guardrails,” such as the employment rate, to guide spending decisions over the short term. The update said Ottawa will announce a long-term anchor “when the economy is more stable.”
Ms. Freeland has said that an affordable national child-care plan will be a central feature of the budget as a way to increase female participation in the work force and create more jobs in the child-care sector. Sources say Ottawa wants the provinces to adopt a subsidized daycare program that would cost families $10 per day. The plan, which will require negotiations with the provinces, would be modelled on Quebec, which offers subsidized spaces for $8.35.
Sources says Ottawa will guarantee that new child-care transfers to the provinces will be sustainable. The Liberals have been promising a national care program since 1993.
Michael Sabia, the deputy finance minister and former corporate executive, pushed for the budget to include a venture-capital fund that would encourage pension funds and other investment vehicles to support Canada’s green technology, manufacturing and innovation sectors.
Budget observers say the Liberals face an obvious messaging challenge in Monday’s budget, because talking about recovery may sound premature at a time when some provinces are experiencing record daily numbers of COVID-19 infections and are worried that intensive-care units may soon reach capacity.
Elliot Hughes, who previously worked as deputy director of tax policy to former Liberal finance minister Bill Morneau, said that while budgets are obviously about spending, they are also a key moment for a government to communicate its plan to voters. He said the government risks coming across as tone deaf if it focuses too heavily on the recovery plan while the country continues to struggle with COVID-19.
“The messaging challenge is trying to reflect where people wish we were, which is the recovery, and where we actually are, which is still in the thick of it,” said Mr. Hughes. “If you can’t land on one clear message, that makes it a lot harder for Canadians to know what your plan is.”
Business leaders have expressed concern about massive stimulus spending when Canadian households and businesses are holding billions in savings and Canada’s economy is poised to benefit from U.S. President Joe Biden’s US$1.9-trillion pandemic relief plan.
“We are saying keep your firepower,” said Business Council of Canada President Goldy Hyder.
On housing, bank economists have been urging policy makers to cool the market, as home prices increase at a record pace. In many parts of Ontario, home values are up more than 30 per cent since the start of the pandemic.
Even with more homeowners listing their properties for sale, it has not been enough to meet demand. Low mortgage rates and the desire for bigger homes is pushing homebuyers outside of major cities and into smaller markets such as Guelph, Cambridge, Woodstock and Ingersoll.
Although Canada’s bank regulator plans to make it harder for borrowers to qualify for an uninsured mortgage, most economists do not think this will slow the market down significantly. Economists say the budget could follow the bank regulator and make it harder for insured mortgage borrowers to qualify for a loan.
With reports from Rachelle Younglai
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