The Federal Canadian budget for March 2022/23 was tabled to the House of Commons. It was focused on making life more “affordable” for average Canadians, paid for by larger-than-expected tax revenues and the announcement of additional taxes on financial sector profits and a permanent increase in the corporate tax rate for large corporations.
Highlights of the budget include:
- Canada Recovery Dividend. This measure is expected to collect C$6 billion over the next six years from banks and insurers on the extraordinary profits generated during the pandemic.
- Infrastructure Fund. This includes C$15 billion of public sector funds seeking private sector leverage to help develop new sustainable technologies.
- First-time buyer tax-free savings account. This program would allow young Canadians to save up to C$40,000 towards a home purchase
The Canadian economy has recovered from the health pandemic materially better than earlier budget expectations. The large windfall in Federal tax revenues has been managed prudently. Fiscal deficits are set for a steady decline and net government debt as a percentage of the economy is expected to remain the among lowest in the G20.1 Canada’s AAA credit rating is not under threat.
Ambitious immigration targets set against a lack of housing supply remain a tailwind for house prices. The budget announced plans for affordable housing construction, while increasing penalties against foreign investors and speculators across the residential housing market. We don’t expect that these policies will resolve the housing shortage across Canada.
There was no market reaction post the budget announcement. It was a conservative economic outlook, with fiscal prudence and a realization that the cost of funding deficits is now set to rise. From a global credit quality perspective, we believe Canadian government debt provides global fixed income investors the confidence needed in an uncertain world.
1 Source: Bloomberg