Budget 2019: How to prepare for an election
While Budget 2019, Investing in the Middle Class, makes a number of important but costly promises, no one policy stands out as the clear centrepiece. Instead, this election Budget is a mixed bag of policies and programs aimed at appealing to unique blocks of voters, including millennials struggling to buy their first home, mid-career workers who must upskill to stay in the labour market, and low-income seniors. In total the federal government is putting $22.8 billion over five years towards issues affecting key voters before the fall election. While supporting Canada’s middle class is crucial, it is equally important to consider the implications of this spending should Canada enter a period of slowed economic growth or a recession.
The Institute has supported or recommended variations of the policies and programs the federal government proposes to implement in Budget 2019 in the past. However, there are early concerns around the specifics of how the government will execute them, and what unintended consequences could result. Moreover, these programs will hinder efforts to reduce the deficit and debt.
- Ensure Canadians are able to develop the skills required to succeed in the labour market
The skills centrepiece of the Budget is the Canada Training Benefit, which aims to help the many Canadians in jobs that are ripe for automation and lack the credentials required to shift into new careers. Between 1993 and 2014, employer spending on workplace training across Canada has declined by 37 percent, from $1,207 per employee to $800, despite the positive effects of these investments on productivity and performance, profitability, retention, and adaptability to technological changes.
One of the elements of the Canada Training Benefit is the Canada Training Credit, which combines elements of similar programs in Singapore and France. Eligible workers can accumulate $250 per year (up to a lifetime credit balance of $5,000) that could be used to refund up to half the cost of a course or training program. This is complemented by an Employment Insurance (EI) Training Support Benefit to provide workers with up to four weeks of income support (which is the same as maternity leave at 55 percent) and new leave provisions to protect workers’ ability to take time off for upskilling.
While this program is timely and responds to Canadians’ concerns about the labour market, critics argue that the Benefit should have been more generous given the low expected uptake, and will overwhelmingly be utilized by upper-middle class Canadians rather than the working poor. Since the program is meant to help those with financial constraints acquire new skills, it would make more sense to allow Canadians to use the credit to cover 100 percent of training costs.
As part of the skills section, the Budget also proposes a number of post-secondary education initiatives that the Institute also supports. Notably, the government plans to expand the availability of work-integrated learning (WIL) opportunities to every young Canadian within ten years (currently WIL opportunities are unevenly distributed), promote training and working in skilled trades, and target investment towards supporting Indigenous youth achieve post-secondary education which will allow them to find well-paying work.
- Make homeownership a more viable option for young Canadians
Ensuring our most economically successful regions are affordable was a key focus of the Institute’s most recent annual report, Unfinished Business: Ontario since the Great Recession. The federal government’s housing initiatives respond to Canadians’ concerns about the status quo. High real estate costs have meant that homeownership rates in Ontario declined in 2016 for the first time since data collection began in 1971. Young adults under the age of 35 are particularly affected by this phenomenon—since 2006 their homeownership rates have dropped by 4.7 percentage points, compared to 1.4 percent for the general population.
The Budget announced a First-Time Home Buyer Incentive that provides a partial shared equity mortgage with the Canada Mortgage and Housing Corporation (CMHC) to lower monthly mortgage payments. The program offers qualified buyers a ten percent equity share for new builds and five percent for existing homes. The government expects it could help as many as 100,000 first-time buyers, limited to those with a household income of less than $120,000. It functions similar to an interest-free loan, with payback likely not required until time of sale, and is capped at four times applicants’ annual income, meaning it will only help buy properties where the mortgage value plus CMHC loan does not exceed $480,000. The government has also proposed to increase the amount that first-time buyers can withdraw from their Registered Retired Savings Program for a home purchase to $35,000, up from the current $25,000. While precise program details will not be released until the Fall, there are concerns about the equity sharing aspect for potential losses for government if housing prices fall (which they have been) or that the program could simply boost housing prices by stoking demand, continuing to push homeownership out of financial reach for many. A similar program proposed in British Columbia in 2016 was panned by economists and housing experts for mostly benefiting existing homeowners and developers.
Budget 2019 also gives the Canada Revenue Agency $450 million over five years starting in 2019-20 to create four new, dedicated residential and commercial real estate audit teams in high-risk regions (namely British Columbia and Ontario), to ensure compliance of tax provisions regarding real estate. The federal government expects this increased enforcement to bring in $68 million of revenue over five years. Statistics Canada will also conduct a data needs assessment for monitoring Canadian real estate to inform tax compliance and anti-money laundering enforcement. Support from the federal government is much needed in Vancouver and Toronto where it was recently announced that the number of non-resident buyers was higher than previously thought. Additionally, RCMP estimates suggest $1 billion in property transactions in Vancouver were tied to the proceeds of crime.
- Provide seniors with greater flexibility to work and participate in the community
In an appeal to older Canadians who want to supplement their retirement income through part-time work, Budget 2019 enhances earning exemptions for Canadians ages 65 and over who receive Guaranteed Income Support, a monthly, non-taxable benefit for low-income Old Age Security recipients. Starting in July 2020, eligibility for the earnings exemption will be extended to self-employment income and provide full or partial exemption on up to $15,000 of income, up from $3,500 per year (which has remained unchanged since 2008).
In 2016, the participation rate for Ontario adults aged 65 and over in the labour market was 14.4 percent and an aging population is responsible for the majority of the decline in the province’s labour market force participation. The changes could incentivize an increase in part-time work by older Canadians who do not want their benefits clawed back, although they do not address any of the structural barriers to older Canadians’ participation in the labour force, such as a lack of flexible work accommodations and on-the-job training for older workers.
Older Canadians will also benefit from $100 million of additional spending over five years for the New Horizons for Seniors Program, which promotes more active participation in the community, and enhanced protections for Canadians’ workplace pensions from corporate bankruptcies.
- Lay the groundwork for increased pharmacare
Despite being one of the four pillars highlighted by the federal government in Budget 2019, the prescription drug initiatives announced will not guarantee universal access to pharmaceuticals. The newly-announced Canada Drug Agency is tasked with assessing the effectiveness of new drugs, compiling a national prescription drugs formulary, and negotiating prices on behalf of provinces—though not acting as a unified buyer in order to decrease drug prices. This is a step in the right direction—and somewhat aligns with the Institute’s 2015 recommendations—but there is little indication when, if ever, a universal program with guaranteed and equitable cost-savings across provinces will materialize. The agency will receive a budget of $35 million, when arguably billions could be saved by creating a program with a single buyer and universal coverage.
The implications of program spending on the debt and deficit
The federal government has clearly decided not to worry about its deficit and debt in leading-up to the federal election. This suggests that the economy will continue to be strong and able to sustain a significant deficit. While the deficit is projected to drop from $19 billion in 2017-18 to $14.9 billion in 2018-19, it will rise to $19.8 billion in 2019-2020.
The debt to GDP ratio is expected to dip a few percentage points in the coming years, from 30.8 percent in 2018-19 to 26.6 in 2023-24. However, these numbers rely on strong projected GDP growth, despite a sharper than expected decline in consumer spending and the reality that more Canadians are struggling to keep up with their own debts. Additionally, the Budget shows that expected growth will be under two percent for the next four years, which is a break from historical projections that have consistently estimated growth of two or more percentage points, signalling potential concerns about a looming recession. Recent research also suggests that Canada’s federal deficit is increasingly “structural,” meaning that there is a gap between normal revenues and expenditures even in normal economic circumstances, which gives cause for concern if economic growth does slow. Even under the worst expected scenario, the debt to GDP ratio is expected to decline, however this does not take into consideration the massive amount of government spending that could take place in a recession. During the Great Recession, Budget 2009 delivered nearly $30 billion in support to the Canadian economy. While there is ample discussion of prospective programs and policies to support Canada’s middle class families, noticeably absent is significant investment to increase competitiveness and counter slow growth, limited only to the continuation and growth of previous investments in innovation, including superclusters and support for small and growing companies.
Photo credit: z_wei, iStock
 The Institute for Competitiveness and Prosperity. The Labour Market Shift: Training a highly skilled and resilient workforce in Ontario. 2016. https://www.competeprosper.ca/work/working-papers/labour-market-shift-training-highly-skilled-and-resilient-workforce-ontario
 The Institute for Competitiveness and Prosperity. Unfinished Business: Ontario since the Great Recession. 2018. https://www.competeprosper.ca/work/working-papers/labour-market-shift-training-highly-skilled-and-resilient-workforce-ontario
 The Institute for Competitiveness and Prosperity. Strength in Numbers: Targeting labour force participation to improve prosperity in Ontario. 2017. https://www.competeprosper.ca/work/annual-reports/strength-in-numbers-labour-force-participation-prosperity-ontario
 Department of Finance. Update of Long-Term Economic and Fiscal Projections 2018. Last modified December 21, 2018, accessed March 20, 2019. https://www.fin.gc.ca/pub/ltefp-peblt/2018/report-rapport-eng.asp
 Government of Canada. “Annex 1: Economic and Fiscal Outlook,” Budget 2019: Investing in the Middle Class. Accessed March 20, 2019. https://www.budget.gc.ca/2019/docs/plan/anx-01-en.html#Impact-of-Alternative-Economic-Scenarios