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Trudeau’s 2024 budget could drive out investment as housing bubble continues

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7 minute read

From LifeSiteNews

By David James

The extent to which the Canadian economy is distorted by a property bubble can be seen by comparing government debt with household debt, with the latter being 130 percent of GDP, nearly twice as much as American households.

Prime Minister Justin Trudeau’s federal government has brought in its 2024 budget, which projects C$53 billion in new spending over the next 5 years. It includes a significant capital gains tax increase, which some are warning will drive away investment, and a plan for more government-controlled public housing.

The Trudeau government is wrestling with a problem that is afflicting most English-speaking economies: how to deal with the consequences of a 20-year house price bubble that has led to deep social divisions, especially between baby boomers and people under 40. 

House prices have tripled over the last 20 years on average, fuelled by the combination of aggressive bank lending and, until recently, falling interest rates. Neither is directly controlled by the federal government. There is no avenue to restrict how much banks lend and the Bank of Canada sets interest rates independently.

Accordingly, the Trudeau government is left to tinker at the edges. It will legislate an increase, from one half to two-thirds, in the share of capital gains subject to taxation for annual investment profits greater than C$250,000. The change will apply to individuals, companies and trusts.

Christina Freeland, Canada’s minister for finance, claimed improbably that only 0.13 percent of Canadians with an average income of $1.42 million are expected to pay more income tax on their capital gains in any given year. 

That is a dubious forecast. The average house price in Canada 20 years ago was C$241,000; it is now C$719,000. Any Canadians who bought an investment property (family homes are exempt) before about 2015 are likely to have a capital gain larger than C$250,000 should they sell. 

The government’s claim that the change will only affect a tiny proportion of Canada’s population is also belied by the government’s own forecast that the tax change will raise over C$20 billion over five years.

The extent to which the Canadian economy is distorted by a property bubble can be seen by comparing government debt with household debt. Canada’s government debt is fairly modest by current international standards: 67.8 percent of GDP in March 2023, down from 73 percent in the previous year. That is about half the U.S. government debt and half the average for G7 countries. 

Canada’s budget deficit is also cautious by Western standards. In 2023-24 it was C$40 billion, equivalent to 1.4 percent of GDP. The U.S. budget deficit is currently over 6 percent of GDP.

Investors account for 30 percent of home buying in Canada, and about one in five properties is owned by an investor. Worse, the enthusiasm for property investment seems to be intensifying. According to one survey, 23 percent of Canadians who do not own a residential investment property say that they are likely to purchase one in the next five years, and 51 percent of current investors say that they are likely to purchase an additional residential investment property within the same time frame.

The problem with the bias towards property investment is that it is actually a punt on land values – and land is inherently unproductive. Business groups have criticized the government’s capital gains hike as a disincentive for investment and innovation, but the far bigger issue is investors’ focus on property, which is crowding out interest in other kinds of investments. 

That means the main source investment capital for businesses will tend to come from institutions, such as mutual funds, which typically have a global, rather than local, orientation.

Faced with forces largely out of its control, the Trudeau government is fiddling at the edges. It has announced the introduction of what it calls “Canada’s Housing Plan”, which is aimed at unlocking over 3.8 million homes by 2031. Two million are expected to be new homes, with the government contributing to more than half of them. This will be done by converting underused federal offices into homes, building homes on Canada Post properties, redeveloping National Defence lands, creating more loans for building apartments in Ottawa, and looking at taxing vacant land.  

The initiatives may have some effect on supply and demand, but the property price excesses are mainly a financial problem caused by unrestrained bank lending that has been fuelled by low interest rates. When a correction does occur, it will most likely be because of changed global financial conditions, not government policy or fiscal changes. 

There are other measures that could be taken to address the property bubble such as reducing, or removing, negative gearing or more heavily taxing capital gains only on property but not other types of investments. But these policies would no doubt would be politically unsalable, so the Trudeau government is instead making minor changes, probably hoping that the problem will fix itself.

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2025 Federal Election

Voters should remember Canada has other problems beyond Trump’s tariffs

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From the Fraser Institute

By Jake Fuss and Grady Munro

Canadians will head to the polls on April 28 after Prime Minister Mark Carney called a snap federal election on Sunday. As the candidates make their pitch to try and convince Canadians why they’re best-suited to lead the country, Trump’s tariffs will take centre stage. But while the tariff issue is important, let’s not forget the other important issues Canadians face.

High Taxes: As many Canadians struggle to make ends meet, taxes remain the largest single expense. In 2023, the latest year of available data, the average Canadian family spent 43.0 per cent of its income on taxes compared to 35.6 per cent on food, shelter and clothing combined. High personal income tax rates also make it harder to attract and retain doctors, engineers and other high-skilled workers that contribute to the economy. Tax relief, which delivers savings for families across the income spectrum while also improving Canada’s competitiveness on the world stage, is long overdue.

Government Debt: At the end of March, Canada’s total federal debt will reach a projected $2.2 trillion or $52,094 for every man, woman and child in Canada. The federal government expects to pay $53.7 billion in debt interest costs in fiscal year 2024/25, diverting taxpayer dollars away from programs including health care and social services. The next federal government should rein in spending and stop racking up debt.

Red Tape: Smart regulation is necessary, but the Canadian economy is plagued by a costly and excessive regulatory burden imposed by governments. Regulatory compliance costs the economy approximately $12.2 billion each year, and the average business dedicates an estimated 85 days towards compliance. The next federal government should cut undue red tape and make Canada an easier place to do business.

Housing Affordability: Canadians across the country are struggling with the cost of housing. Indeed, Canada has the largest gap between home prices and incomes among G7 countries, and rents have spiked in recent years in many cities. In short, there’s not enough housing to meet demand. The next federal government should avoid policies that stoke further demand while working with the provinces and municipalities to remove impediments to homebuilding across Canada.

Collapsing Business Investment: Business investment is necessary to equip workers with the tools, technology and training they need to be more productive, yet business investment has collapsed. Specifically, from 2014 to 2021, inflation-adjusted business investment per worker fell from $18,363 to $14,687. Declining investment has helped create Canada’s productivity crisis, which has led to a decline in Canadian living standards. Clearly, Ottawa needs a new policy approach to address this crisis.

Declining Living Standards: According to Statistics Canada, inflation-adjusted per-person GDP—a broad measure of living standards—dropped  from the post-pandemic peak of $60,718 in mid-2022 to $58,951 by the end of 2024. The next government should swiftly reverse this trend by enacting meaningful policy reforms that will help promote prosperity. The status quo simply will not suffice.

Tariffs are a clear threat to the Canadian economy and should be discussed at length during this election. But we shouldn’t forget other important issues that arose long before President Trump began this trade war and will continue to hurt Canadians if not addressed.

Jake Fuss

Director, Fiscal Studies, Fraser Institute

Grady Munro

Policy Analyst, Fraser Institute
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Business

CMHC dished out $30 million in bonuses in 2024

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By Ryan Thorpe 

The Canada Mortgage and Housing Corporation rubberstamped $30.8 million in bonuses in 2024, according to government records obtained by the Canadian Taxpayers Federation.

That pushes total bonuses at the CMHC up to $132 million since the beginning of 2020.

“Why are Canada’s housing bureaucrats showering themselves with bonuses when countless Canadians can’t afford homes?” said Franco Terrazzano, CTF Federal Director. “Canadians need more homes, not more highly paid pencil pushers rubberstamping bonuses for each other.”

A total of 2,398 CMHC staff (91 per cent of its employees) took $30.8 million in bonuses in 2024 – for an average of $12,865 each.

The records show that 12 CMHC executives took a combined $1 million in bonuses last year – for an average of $83,859 each.

The CMHC also issued 2,190 pay raises to staff in 2024, costing taxpayers $9.3 million. No employees took a pay cut, according to the records.

The CMHC has repeatedly claimed it’s “driven by one goal: housing affordability for all.”

In 2024, the Royal Bank of Canada said it was the “toughest time ever to afford a home.”

Last year, polling from Ipsos found 72 per cent of Canadians who do not own a home say “they have given up on ever owning” one.

Eighty per cent of respondents to that poll also said home ownership in Canada is now “only for the rich.”

The Canadian Real Estate Association, in its latest housing outlook report, predicted the average home price will “climb by 4.7 per cent on an annual basis to $722,221 in 2025.”

“The CMHC’s c-suite deserve pink slips more than huge bonuses,” Terrazzano said. “The federal government must stop rewarding failure with taxpayer-funded bonuses.”

Undeserved bonuses are a longstanding tradition in Ottawa.

The federal government has awarded $1.5 billion in bonuses since 2015, despite the fact that “less than 50 per cent of [performance] targets are consistently met within the same year,” according to the Parliamentary Budget Officer.

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