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Instant View: Canada's budget aims to make housing more affordable

·6 min read
Canada's Finance Minister Chrystia Freeland delivers the 2022-23 budget, in Ottawa

TORONTO (Reuters) - Canadian government on Thursday unveiled its 2022 budget focusing on making housing more affordable and offering substantial incentive to companies investing in carbon-capture technologies, as it seeks to cut carbon emissions.

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Market reaction: CAD/

Link: https://budget.gc.ca/2022/report-rapport/toc-tdm-en.html

COMMENTARY

REBEKAH YOUNG, DIRECTOR OF FISCAL AND PROVINCIAL ECONOMICS AT SCOTIABANK

"Overall there were a number of pleasant surprises. There were very big revenue windfalls from corporate and personal income tax receipts and strong nominal GDP growth."

"There were also new revenue raising measures in particular an expenditure review. "We are looking at a fiscal path that better than was expected in December."

VIVEK DEHEJIA, PROFESSOR AT CARLETON UNIVERSITY’S DEPARTMENT OF ECONOMICS

"I get the sense that they (the government) really have a very uneasy balancing act, between the promises they made to the people of Canada to roll back the extraordinary support of the pandemic to get the fiscal house in order, and the commitments they've made to the NDP as part of their alliance."

"My biggest complaint is I did not really see a clear acknowledgement that the inflation problem is a made in Canada problem."

"The finance minister repeats the government's talking points that this is a global problem. But guess what? It's a problem that's also of our creation, with very high fiscal deficits, with a very loose monetary policy, high money creation by the Bank of Canada, and I didn't hear that acknowledgement."

ANDREW KELVIN, CHIEF CANADA STRATEGIST AT TD SECURITIES

"I was surprised by the degree to which the government leaned into reducing the term of (debt) issuance. While we did expect a reduction in the average maturity in the bond space we didn't expect to see less emphasis on 10s (10-year bonds) and 30s. I did not anticipate that they would decrease bond issuance by as much as they did by transitioning to bill issuance."

"The deficit is perhaps a touch lower than we'd anticipated but certainly well within the ball park that we had expected. And longer-term deficit projections are also encouraging in so far as they continually move lower over the government's forecast horizon."

MATHIEU LABERGE, A PARTNER AND REGIONAL LEADER AT CONSULTING FIRM KPMG IN CANADA

"The government had to balance the need for foreigners to be able to house themselves while staying in the country with the need to ensure that homes aren’t sitting empty on the market. This one has to be a balancing act because there is a perceived need to intervene on the housing market to manage the foreign investment in the market."

"They exempted refugees, permanent residents, students who intend to stay in the country and people in Canada on a work permit from the ban. "The key question is how will it be managed. It's pretty targeted, it seems to strike the right balance, but will it be enough?”

ROBERT KAVCIC, SENIOR ECONOMIST AT BMO CAPITAL MARKETS

"The 2022 federal budget opts to add a moderate increase in spending while relying on stronger underlying economic activity and some tax measures to slightly improve the deficit track. The initial to-do list for this budget was formidable with earlier commitments on child-care funding, emissions reductions, and housing, but was recently extended to include dental care and ramped up defense spending. To accommodate this raft of priorities, spending has been spread out over a number of years on some files, a variety of tax measures have been enacted—with some details to be determined—and the stronger revenue base has been tapped. As a result, the deficit and debt projections from late last year have improved overall, even with the new spending announcements."

"However, given the already extreme pressure on inflation, we judge that a modest improvement in the deficit outlook could be more ambitious in repairing the pandemic's fiscal damage. And, while most were probably braced for even more spending, net policy measures will still add roughly 0.3 ppts to the economy this year, at a time when an inflation battle is well underway."

"As we have long maintained, fiscal policy has every big a role to play in controlling inflation as does monetary policy. And, with inflation clocking in at a 30-year high of 5.7%, and potentially headed higher yet, there is some urgency for the task at hand. The Bank of Canada is in the early days of reversing course, with potentially rapid tightening measures on the near horizon...For fiscal policy, the appropriate stance with the economy operating at full capacity and revenues rising rapidly would have been to let the windfall largely flow through to the bottom line."

"Housing was the key focus area of this budget, but the volume and sheer number of measures likely well surpasses the actual impact we'll see on the ground. Measures attempt to add supply, while also pushing further on demand, and implementing some tax measures that will take time to filter into the market. While there are some commendable efforts coming, any impact on home price inflation will be entirely incremental against a backdrop of Bank of Canada tightening."

ROBERT ASSELIN, SENIOR VICE PRESIDENT FOR POLICY AT THE BUSINESS COUNCIL OF CANADA

"There was no upside to spend in the short term, which I think was the right decision to be honest. I think it's a bit tentative on the growth plan side. At least they recognize the problem and they are starting to address it. But you know, creating agencies and structures still looks a bit like they still don't know how to do it. I was pleased with some of the green transition stuff, the carbon capture tax credit, this new tax credit for clean tech, some industrial strategy around critical minerals."

"There's some serious investments there. I thought their housing chapter was weak, to be honest, a bit gimmicky... I'm not sure the federal government has any real levers here to influence supply."

"To their credit, when you look at the net spending in the short term, they did not over-stimulate an economy that was already overheated... That would have been a big mistake. If I would have seen like 20, 30, 40 billion (dollars) of new spending in the first year, I would have said this is not responsible. But this is not what we're seeing today. Yes, they're spending. It's measured... It's over time. And I think most of it is reasonable."

(Reporting by Steve Scherer, Allison Lampert, Fergal Smith and Nia Williams; Editing by Denny Thomas)