Soaring Housing Costs Top Federal Budget Agenda
CBJ – The Canadian government made has made it clear that skyrocketing home prices will be a main focal point following Thursday’s budget delivered by Finance Minister Chrystia Freeland in Ottawa.
Part of the government’s initial plan is to lay down a temporary ban on foreign buyers looking for strong investments as well as a crackdown on speculators. Freeland acknowledges the need to rapidly increase the pace of home construction so that demand doesn’t continue to far outweigh supply. The nation currently builds about 200,000 new homes a year — a pace the government says is well short of what’s needed. The government is committing $10 billion across various initiatives to get shovels into the ground.
Another aspect relating to home buying are Tax-Free First Home Savings Accounts. Starting in 2023, Canadians can contribute up to $8,000 per year to the accounts, which allow them to save and invest funds to buy a home in the most tax-advantageous way. However, over five years the maximum amount would be just $40,000, which seems woefully inadequate, given that most so-called starter homes nowadays are going for at least $600,000.
RRSPs offer a tax rebate through individual contributions, but any monies withdrawn under the existing Home Buyer’s plan must be returned in full without the tax break. People who use their TFSAs to save for a home can grow those funds in a tax-sheltered way, but they don’t get the tax break when they make the investment.
The government is also allocating about $8 billion to military spending over the next five years. However, Canada still falls far short of NATO expectations that 2% of GDP be spent on national defense. But Canada would need to spend nearly $10 billion per year over the next five years to be in line with NATO expectations. The U.S., Britain, France and other countries have repeatedly criticized Canada for failing to live up to its end of the deal.
The total new spending adds up to about $60 billion, though the net new spending is about 50% of that, when factoring in plans to pull in money via banks and other successful ventures to help pay down Canada’s debt. The new budget forecasts an overall deficit in the neighbourhood of $53 billion.