On April 16th, Canada’s federal government released its 2024 budget titled “Fairness for Every Generation.” In the forward to the budget, Christina Freeland states “Our renewed focus today is unlocking the door to the middle class for millions of younger Canadians.” In an environment of elevated inflation and interest rates we may think that the government would consider cooling spending, in an attempt to cool the economy. Instead, the budget proposes allocating nearly half a trillion dollars of taxpayer money. Although only $52.9 billion of this is part of the new spending plan, this increase in spending comes at a time when the economy is struggling to manage inflation.

To fund its multi-billion dollar commitments, the government has increased taxes on capital gains from the sale of assets such as stocks and secondary properties. The inclusion rate on capital gains will be raise from 50% to 66.7% starting June 25th 2024. This applies to:

• Any portion of a capital gain over $250,000 realized by an individual; and

• Capital gains recognized by corporations and trusts

Freeland expects that the adjustment would affect only the top 0.1% of earners. However, this will also have a substantial impact on the profitability of corporations. The change will predominantly affect businesses involved in purchasing and selling assets, such as real estate investors or holding companies that deal in publicly traded securities or other enterprises.

The budget proposes that Canadian’s spend $8.5 billion on building new houses. This is part of the government’s Canada Housing Plan, a commitment to make nearly 3.9 million homes available by 2031. Jimmy Jean, the Chief Economist of Desjardins outlines that although investing in new housing now will reduce shelter inflation in the future, "in the meantime, you have to hire workers and get more materials and that can create more pressure on inflation". Many are wondering: could this increase in spending make inflation worse?

The concerns about inflation extend beyond the potential for new spending to accelerate price increases.

A more significant concern is the extent to which the budget relies on inflation returning to its target level quickly. Canada’s future growth is contingent on improvements in the economy. Economic improvements hinge on a reduction in interest rates this year. In turn, these reductions rely on inflation consistently returning to the 2% target. "It all depends on continued growth" stated Sahir Khan, executive vice president of the Institute of Fiscal Studies and Democracy at the University of Ottawa. "It all has to line up in terms of the growth. You have to have enough rate cuts ahead of the next election to make people feel better as they head to the voting booth, and that's a lot of dependency," he said.

Overall the budget paints an optimistic picture of our economy and our future. But, as recent years have taught us, the world is unpredictable and the economy frequently defies expectations.

As always, we're here to help you navigate the government's latest changes outlined in the 2024 Federal budget. If you have any questions or need further clarification, please don't hesitate to give us a call. You can call us at 604-643-0101 or email cashgroup@cgf.com.