Federal Budget 2022 in Canada left investors less than thrilled.
The minority Liberal Party of Canada released their 2022 budget last week. To recap, government spending is set to top $31 billion over the next 5 years. This whopping bill represents about 1%-2% of GDP.
I can’t help but wonder which country is next to join the >150% club? You never know, Trudeau might give Macron a run for his (or France’s) money!
Spending Highlights
- $5.3 billion – Dental Care Program
- $8 billion – National Defense – large chunk earmarked for Ukraine
- Housing Affordability – ban foreign purchases of residential property for 2 years – create the First Home Savings Account (hybrid TFSA, $40k cap)
- Clean energy – 30% tax credit to businesses focusing on clean energy – create the Canadian Growth Fund to attract new investment in technology
Bank/Life Co. New Taxation Measures
- Increase corporate tax rate by 1.5%, from 15% to 16.5%
- One-time Canada Recovery Dividend – 15% tax on earnings > $1 billion for the 2021 tax year
- “Looking into” a wealth tax – details to be released later in 2022
Conclusion
To put it bluntly, investor’s had to pinch their nose to get through this budget. Indeed, the Trudeau government delivered on their campaign promises. The NDP got a national dental program, which is a good thing. Of course, housing affordability will continue to be a problem even with the budget measures introduced, largely driven by short supply and way too low interest rates.
Big banks and life insurance companies, a favorite target of Trudeau, are now face rising costs thanks to higher taxes. Unfortunately for consumers, financial institutions wrote the play book on passing costs onto customers. In the end, taxing financials leads to higher inflation.
All in all, this budget was not investor friendly. The Canada Recovery Dividend (or more accurately called a tax) is nothing more than a opportunistic tax on Canadian financial institutions, the fabric of Canada. To be sure, Canada’s energy sector is now in Trudeau’s sights thanks to the Ukraine war. In light of sky high oil prices, the energy sector likely is facing the same situation as the financials. Higher taxes and more inflation down the road.
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