Federal Budget 2024: Do No Harm
Federal Budget 2024: Do No Harm
Managing Director & Chief Economist
Douglas Porter has over 30 years of experience analyzing global economies and financial markets. As Chief Economist at BMO Financial Group and author of the popular…
Vice President, Director of Tax Consulting Services at BMO Private Wealth
John has strategic oversight of the Tax Consulting team, seasoned tax specialists who support BMO Private Wealth Advisors and their clients by advising high net wor…
Douglas Porter has over 30 years of experience analyzing global economies and financial markets. As Chief Economist at BMO Financial Group and author of the popular…
VIEW FULL PROFILEJohn has strategic oversight of the Tax Consulting team, seasoned tax specialists who support BMO Private Wealth Advisors and their clients by advising high net wor…
VIEW FULL PROFILE-
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Heading into last year’s Federal Budget, Ottawa was fretting over the economy and how high inflation could damage household finances. Today, those pressures are less pronounced – inflation has cooled and the economy is proving to be resilient. While this gives the government a little more room to maneuver, the overarching theme for this fiscal statement, which will be tabled on April 16, will likely be “do no harm”.
Over the past year, the economy has performed slightly above expectations, including those laid out in the recent Fall Economic Statement. At that time, the assumption was that there would be near-zero growth, with a potential downside scenario of the economy contracting by 1%, says Douglas Porter, Chief Economist of BMO Financial Group. Today, economists are leaning towards growth of up to 1% for 2024, he says.
In theory, that could give Ottawa some modest wiggle room to introduce new programs without adding further to the deficit, but the government seems to be going out of its way to downplay expectations. “The Finance Minister has essentially said in recent weeks that this budget is going to help set the conditions for interest rates to come down,” says Porter. “The way I read that is it means they won’t be spending a whole lot of extra new money.”
The concern is that new spending programs could stimulate the economy and reignite inflation, working at cross purposes to the Bank of Canada (BoC). With the real possibility of the BoC cutting rates later this year, which would help improve affordability, Ottawa will likely take a cautious approach.
Helping the next generation
John Waters, Vice President and Director of Tax Consulting Services at BMO Private Wealth, shares Porter’s view. He believes the Finance Minister will only take modest steps, likely targeting housing, affordability and economic growth.
“Chrystia Freeland had been talking about housing, affordability and economic growth, and also generational opportunities,” says Waters. Much of the focus in recent months has been more about adding housing supply, and he wonders if this could also encompass increasing rental units.
The Federal government has previously indicated it wants to deal with “renovictions” – the practice of landlords evicting tenants to renovate a unit in the hope of renting it out at a higher price. One approach highlighted has been to force landlords to disclose the pre- and post-rental rates after those renovations and impose a potential surtax if the increase in rent is excessive, says Waters.
Other measures to watch for
There has also been some talk of introducing new benefits for seniors in recent years. The two on Waters’ radar are a possible career extension tax credit – to encourage seniors to continue working – and converting the caregiver tax credit into a refundable tax-free benefit, adding they were also included in the recommendations put forward by the Standing Committee on Finance.
One other area to watch is a potential 25% bump to the Canada/Quebec Pension Plan (CPP/QPP) survivor benefit, which Waters notes was part of Prime Minister Justin Trudeau’s election platform.
From a small business perspective, Waters is also looking to see if the budget will advance a proposal that would introduce a $10M capital gains exemption on the sale of small businesses to an employee ownership trust. Given that the proposal was first mentioned in November’s Fall Economic Statement, Waters believes there is a chance that further details on this initiative could be outlined in the budget.
What’s happening with the AMT?
One of the headlines for high-net-worth individuals that came out of last year’s budget was the revamp of the alternative minimum tax (AMT). The proposed legislation seeks to prevent high-income earners and trusts from using deductions, exemptions and credits to pay little or no tax. Many feared some of the proposed measures would disincentivize the gifting of publicly traded securities to charities.
“The AMT has still not been formally enacted,” said Waters, adding that the proposal was conspicuously absent from the second budget bill that came out last December.
“It’s led some practitioners to wonder if the government is rethinking this legislation or considering some tweaks,” says Waters. What’s unusual about this is that these budget bills are usually passed before Parliament recesses in December. “It’s created uncertainty as the proposals have a January 1, 2024, implementation date.”
Looking ahead
The environment, which this government has prioritized, will likely also find its way into this year’s budget, although Porter would be surprised to see anything as ambitious as the incentives for the new battery plants that are already in place.
In the absence of any major program announcements, Porter expects the government will point to the recently announced $1-to-$2 billion pharmacare deal and talk about reaffirming other housing affordability measures.
“Other than that, I think they’re just going to point to a lot of the measures they’ve announced in the last couple years, such as on housing,” says Porter. “I’m guessing repeating past measures is going to be a big theme this year without really announcing a whole lot of new things.”
Read more insights from BMO Private Wealth here.
