Promising more fiscal prudence, Freeland tables a lower-spending budget focused on housing

Finance Minister Chrystia Freeland tabled her second federal budget Thursday — a multi-billion dollar plan meant to help the country weather increasingly uncertain times through major investments to cool Canada's red-hot housing market and supercharge the transition to a cleaner, greener economy.

Freeland signalled the days of eye-popping 12-digit budget deficits are coming to an end and promised a return to greater fiscal prudence now that the immediate threat of COVID-19 has abated.

With corporate Canada jittery about Ottawa's sky-high deficit spending in recent years, Freeland acknowledged the country's ability to spend is "not infinite" and — with interest rates now rising to tame inflation — it's time for the government to "review and reduce" spending.

To that end, Freeland tabled a relatively thin 280-page budget — 500 fewer pages than last year's document — that is much more focused on a few key areas than Liberal budgets of the recent past. The budget allocates only $31.2 billion in net new spending over the next five years — a fraction of the sums in recent budgets.

"Canada has a proud tradition of fiscal responsibility. It is my duty to maintain it — and I will," Freeland said.

Canada's finances have improved in the few months since Freeland tabled her last fiscal update. With the federal government winding down costly COVID-related spending and cashing in on substantially higher oil prices, the deficit for the 2021-22 fiscal year will be $30 billion lower than what Freeland predicted it would be in December.

The 2022-23 deficit projection is $52.8 billion — half of what it was last year.

"It's really not a lot of spending relative to past budgets. Actually, it's a pretty slim budget for the size of our economy," said Kevin Page, president and CEO of the Institute of Fiscal Studies and Democracy at the University of Ottawa. "It's just not a big-spending budget."

The government's preferred fiscal anchor, the debt-to-GDP ratio (which tracks the size of the federal debt compared to the economy as a whole), is expected to fall to 45.1 per cent this year before drifting down to 41.5 per cent by 2026-27 — a level closer to the pre-pandemic era.

This federal budget has already been dubbed the "housing budget" by some observers because so much of the new spending is directed at getting more people into homes of their own. A third of all new spending in this budget — $10.1 billion — is directed at housing.

With the average price of a Canadian home soaring past $800,000 in February, Freeland said a home is "out of reach for far too many Canadians" and the government is prepared to do "everything" it can "to make the market fairer."

To start, the federal government will impose a two-year moratorium on foreigners buying non-recreational residential property in Canada.

Over the past three decades, offshore money has flooded into Canadian real estate, pushing up prices in major urban centres like Toronto and Vancouver. The government hopes this ban will cut off a source of capital that has distorted the market.

The government is also introducing a new investment vehicle: the "Tax-free First Home Savings Account." This program combines features of RRSPs and TFSAs — money added to a tax-free first home savings account would go in tax-free and could be withdrawn without any taxes owing on investment gains.