CLA Analysis of the 2024 Federal Budget: ‘Fairness for Every Generation’ in Election Lead-Up

Toronto, ON — April 19, 2024 — In a strategic move ahead of the impending election, Deputy Prime Minister and Minister of Finance Chrystia Freeland presented the 2024 federal budget titled “Fairness for Every Generation.” This budget, which projects substantial fiscal outlays and tax adjustments, seeks to bolster support among younger Canadians while maintaining fiscal guardrails. 

Key Political Dynamics:

With an election anticipated within the next 18 months, the Liberals are strategically investing to reinforce their appeal among younger voters—who have been crucial in their last three electoral victories—and to maintain their alliance with their coalition partners, the NDP. This year’s budget leans heavily on increased taxes for the wealthiest Canadians, specifically raising the capital gains inclusion rate from 50% to 66% for high earners, which the government alleges will affect approximately 0.13% of the population. This policy is designed to resonate with broader electoral bases who favor wealth redistribution. However, this move has sparked concern in the tech and innovation sectors, with fears that it could harm Canada’s innovation economy and drive talent to more competitive markets like the United States. Canadian technology leaders have already signed an open letter urging the government to reverse course on this decision. As the debate continues, the government’s response to these concerns will be crucial in shaping Canada’s future as a competitive player in the global innovation landscape.

Highlights from the 2024 Budget:

• Tax Adjustments: An increase in Capital Gains tax for corporations and for individuals on gains above $250,000 is introduced, aligning with the government’s approach to ensure fair taxation.
• Implementing Open Finance Framework: The government plans to introduce two key pieces of legislation aimed at implementing Canada’s consumer-driven banking framework. This initiative will be supported with an allocation of $1M to the Financial Consumer Agency of Canada (FCAC) and $4.1M to the Department of Finance.
• Supporting Renters and Homeownership: Banks, fintechs, and credit bureaus are encouraged to develop opt-in tools that allow renters to report their rent payments. This initiative is aimed at boosting credit scores and aiding the transition from renting to homeownership.
• Fostering Innovation in Fintech: The budget outlines significant support for Artificial Intelligence and fintech innovation, including targeted budget allocations and tax incentives. These measures are designed to spur growth and the development of new fintech applications and tools.
• Eliminating Consumer Burdens: The government is taking steps to eliminate “junk fees” that financially burden consumers, making everyday financial dealings more transparent and fair.
• Greener Affordable Housing: Over $458 million is allocated to the new Greener Affordable Housing stream of the Canada Greener Homes Loan program. This initiative will provide low-interest loans and grants for energy-efficient retrofits of affordable housing, reflecting the government’s commitment to sustainable development.
• General Government Spending Increase: There will be a substantial increase in total program spending to $534.6 billion, marking a 44.5% rise since 2015-16, with a forecast deficit of $40 billion for the fiscal year. Noteworthy investments include $53 billion in new spending initiatives covering housing, national disability benefits, and school food programs. These measures are aimed at making life more affordable, especially for Millennial and Gen Z voters.

Implications for Future Policy and Governance:

As the next election approaches, this budget clearly positions itself as a strategic document, not merely a financial plan but a blueprint for the Liberals’ future governance and electoral strategy. This budget’s extensive commitments are designed to resonate with younger demographics and address their unique economic challenges, such as affordability and access to housing, which have become increasingly pressing. By focusing on these areas, the government aims to solidify a base of support that has proved pivotal in past elections.

While we appreciate the budget’s focus on consumer-driven finance and economic equity, the proposed increase in capital gains tax has met strong opposition from the fintech sector, a key driver of Canada’s future economic growth. Leaders within this community have expressed serious concerns that such tax measures could stifle innovation and drive talent to more competitive markets abroad, potentially triggering a brain drain that would undermine Canada’s position in the global economy.

By siding with the tech industry, the CLA recognizes the need for policies that foster an environment conducive to innovation and entrepreneurship. It is crucial that the government balances its fiscal strategies to support equitable growth without disadvantaging sectors that are pivotal to our national economic advancement. The fintech sector’s reaction is a stark reminder of the delicate balance required to ensure long-term competitiveness and innovation in Canada.

Furthermore, while the budget includes progressive measures like green housing initiatives and the introduction of an open finance framework, these cannot overshadow the need for a holistic approach that includes nurturing high-growth industries. The government must consider the broader implications of its tax policies and strive to maintain an attractive landscape for venture capital and startup enterprises.

In light of these concerns, it is imperative for the government to engage more deeply with industry leaders and entrepreneurs to foster a regulatory environment that bolsters rather than burdens Canada’s innovation ecosystem. Moving forward, it will be essential to reassess these fiscal policies and ensure they truly align with the broader goals of economic resilience and technological leadership.

The CLA will continue working with the government across different financial sectors to represent the interests of borrowers in Canada. Our ultimate goal is to create a fair and transparent financial environment that protects consumers while promoting innovation. By maintaining this dialogue with the government, the CLA plays a vital part in shaping a stable economic future for Canada, ensuring policies balance consumer protection with growth and innovation.