Prime Minister Mark Carney’s first federal budget comes at an important moment for Canada as we face an increasingly hostile United States and the need to chart our own path.
The choices this government makes now will have real effects on the lives of British Columbians and Canadians.
There’s a lot to unpack in the nearly 500-page budget document, including some quite concerning policy directions, along with a few positive steps.
Worryingly, the budget plans for the largest cuts to the federal public service since the 1990s.
This would weaken the capacity of the public sector at a time when it’s needed more than ever to tackle big, society-wide challenges. The budget provides nothing new to shore up expansion of universal child care or pharmacare and falls short on health care funding. Instead, it prioritizes huge outlays to military spending while the government flirts with joining expensive schemes like Donald Trump’s Golden Dome, which would only deepen our dependence on the US.
Some modest but positive steps in the budget include pushing ahead with automatic tax filing for the lowest-income Canadians, funding a modest new Youth Climate Corps program and prioritizing investment in badly needed local infrastructure projects. However, that same infrastructure will be damaged in the decades ahead by the effects of climate change, an area of policy where the government has been rapidly retreating and this budget unfortunately continues that trajectory.
I won’t try to cover the whole budget in this post, but rather share some initial thoughts on three key missed opportunities that stand out.
Who isn’t being asked to sacrifice in this time of crisis?
The prime minister stressed the need for Canadians to “sacrifice” in a time of crisis, but the budget betrays some striking choices about who is asked to sacrifice and who isn’t.
At a time of record income inequality in Canada, the government has shown little interest in ensuring the wealthiest few contribute more to the common good. As our research finds, a moderate wealth tax on less than 1% of the richest Canadians could raise $39 billion in its first year and half a trillion dollars over a decade.
Instead, the government has abandoned an even more modest capital gains tax reform—at a cost of $19.4 billion over five years—that would have partly addressed one of the most unfair elements of Canada’s tax system. Under the status quo, income from capital gains (accrued mostly by the richest Canadians) is taxed at half the rate of income from wages and salaries that most working people earn.
This budget also prioritizes a slew of corporate tax breaks, even as Canada has a marginal effective corporate rate that the Department of Finance estimates was already lower than the US as well as OECD and G7 averages.
In effect, this budget is asking public service workers facing cutbacks and struggling Canadians needing better access to child care, housing, health and pharmacare to sacrifice so that more tax breaks can be given to corporations, the richest few and a major expansion in military spending.
Missing the moment on the housing crisis
At a high level, the federal government has been talking a big game on housing.
Most prominently, they are funding a new Build Canada Homes program to build out non-market housing on public lands, which also has the aim of catalyzing a factory-built homes industry to reduce housing construction costs. These are good aims, but the government’s plans fall short on the crucial matter of scale. The initial tranche of Build Canada Homes projects amounts to only 4,000 homes, “with additional capacity of up to 45,000” over an unspecified timeframe. But Canada needs to target at least 100,000 new non-market homes every year to meet the pent-up need after decades of neglect.
Similarly, policy action fails to match the rhetoric when it comes to addressing the overall housing shortage including by increasing private housing production.
The government’s goal of doubling homebuilding across Canada is laudable and necessary and its increase in funding for local infrastructure projects could help clear the path. But that kind of increase in housing creation won’t be possible as long as big, expensive cities like Vancouver and Toronto are allowed to continue blocking apartments on most of their residential land through exclusionary zoning and an array of other roadblocks.
Existing federal programs like the Housing Accelerator Fund and the Canada Housing Infrastructure Fund were supposed to be conditioned on cities dismantling local roadblocks to new housing. But the federal government hasn’t required an end to apartment bans and it has proven reticent to enforce even the weaker conditions it has added. This pattern seems to be repeating itself as the budget quietly backs away from the promise of requiring that municipal fees charged on new housing be cut in half in exchange for increased federal infrastructure funds.
It’s become common for our most expensive cities to charge high fees on new apartments to fund the public infrastructure needed to make cities work, but this suppresses housing creation and drives up rents and prices, putting these costs on the backs of renters and first-time homebuyers.
Getting serious about productivity that improves Canadian lives
The word “productivity” appears in this budget 131 times, including that “productivity growth… means finding ways for businesses and workers to produce more with the same effort.” Clearly, there are missed opportunities in this budget when it comes to enhancing economic productivity while also directly improving people’s lives and meeting key social needs.
This brings us back to the question of housing policy discussed above. When people are excluded from large high-productivity cities by out-of-reach costs due to housing policy failures, this means excluding them from job opportunities and higher wages. In turn, this hurts economic productivity and increases inequality.
Big cities are critical economic engines. The federal government should leverage infrastructure funding to finally require an end to apartment bans and unleash cities’ productivity and growth potential. Allowing denser housing like apartments also lowers public infrastructure costs, since low-density sprawl is much more expensive to service per resident. Also absent from the budget is adequate funding to invest robustly in high-quality public transit. It is well documented that public transit significantly benefits economic productivity, connecting workers and jobs while sparing people from grinding commutes that car-centric sprawl creates. For a 500-page productivity-focused budget, it’s striking that the term “public transit” appears only three times.
Conclusion
This federal budget was supposed to be about making “generational investment” to tackle the challenges of our time, including an unreliable and hostile United States. The prime minister has emphasized that “we can give ourselves more” than Trump can take away from us—and he’s right. But this budget misses key opportunities to do so, failing to adequately address key issues like Canada’s extreme income and wealth inequality, our severe housing shortage and the imperative to enhance productivity in ways that meet people’s needs, not just pad profits.
