2022 Federal Budget: New spending on housing, defence, and a nod to fiscal restraint

In the lead up to her second budget, expectations of Deputy Prime Minister and Minister of Finance Chrystia Freeland were as high as accelerating inflation rates. Persistent pandemic-related concerns, and looming global uncertainty made for a complex set of factors to consider as she charted Canada’s fiscal course for the upcoming few years.

With its heavy focus on green measures, COVID-19, and reconciliation, the federal government’s December 2021 Economic and Fiscal Update had been viewed as a scene-setter for the government’s spending priorities heading into Budget 2022: A Plan to Grow Our Economy and Make Life More Affordable.

But times have changed.

Since last December, the Russian invasion of Ukraine has created pressure from the Conservatives and NATO allies for Canada to up defence spending. Meanwhile, calls from the private sector for renewed emphasis on growth measures have placed additional spending pressures on the federal government.

If the stakes weren’t high enough, Prime Minister Justin Trudeau’s historic confidence-and-supply agreement with the NDP all but locked in massive new spending commitments, including most notably national dental and pharmacare programs that the Liberals did not envisage only a few short months ago.

From NATIONAL’s perspective, this budget is clearly the initial test of the recent Liberal-NDP pact. Their agreement carries through 2025—a political lifetime away. Major milestones like this will serve as an indicator of how the two parties are in alignment, and where cooperation is not going so smoothly.

Budget 2022 includes several new spending commitments, especially on housing and defence. But it will focus on making life more affordable for Canadians and giving a long-needed boost to Canadian productivity.

Budget 2022: Overarching view

• The deficit is projected to fall to 0.9 per cent of GDP by 2024-25 before reaching 0.3 per cent by the end of the budget planning horizon.
• Deficit projected at $52.8 billion for 2022-2023.
• $31.2 billion in new spending over five years—with big-ticket items including housing supply, Indigenous reconciliation, addressing climate change, and national defence.
• Government is set to take in more than $2 billion in revenue-generating efforts.
• Canada’s debt-to-GDP ratio is projected to decline to 41.5 per cent by 2026-27, down from 45.1 per cent this year
• New surtax on banks’ pandemic profits exceeding $1 billion.

Analysis

From a political perspective, this budget does a good job of appeasing the legion of competing stakeholders and priorities:

• Rebuilding the economy as the world emerges from the worst of the pandemic but in the face of rising inflation.
• Reassuring Canadians that life will become more affordable; specifically through direct action to address housing costs.
• Reassuring international allies that Canada can meet international agreements; particularly on defence, but also on climate change.
• Reassuring the Liberal base that climate action and achieving a net-zero transition by 2030 remains a priority of the government.
• Reassuring the NDP that their priorities are addressed.

Going into the budget, and with the ink still drying on their agreement with the Liberals, New Democrats expressed optimism that their key priorities would be reflected in the budget and that that they would not be blindsided by any unexpected omissions. Their confidence was not misplaced. By some measures, today’s budget contained $15 billion in spending on initiatives related to the agreement, including:

• $475 million in 2022-23 to provide a one-time $500 payment to those facing housing affordability challenges. The specifics will be announced at a later date.
• $5.3 billion over five years, starting in 2022-23, to provide dental care for Canadians. This will start with under 12-year-olds in 2022, and then expand to under 18-year-olds, seniors, and persons living with a disability in 2023, with full implementation by 2025.
• The federal government will table a Canada Pharmacare bill and work to have it passed by the end of 2023, and then task the Canadian Drug Agency to develop a national formulary of essential medicines and bulk purchasing plan. No related spending was announced.
• $4.3-billion injection of cash in Indigenous housing

Canada’s business community, on the other hand, might not be feeling its needs were met. From a fiscal perspective, this latest budget demonstrates the Liberals are comfortable remaining “in the red” until 2026-2027—the forecasted timeline to return to balanced budgets—choosing to spend additional revenues generated by higher oil prices rather than using the windfall to reduce the deficit.

According to some, the budget is also light on the kinds of growth measures many economists and business leaders say is crucial to increase Canada’s competitiveness and productivity.

Time will tell whether the Liberals have bitten off more than they can chew with this new budget.

What it means for you

Housing

With inflation creeping towards 6 per cent, it was key for the Liberals to address concerns around cost of living and housing affordability. Government officials hoped today’s document would be remembered as the "housing budget" in light of its focus. Notably, it includes:

• $475 million for a round of one-time, direct payments of $500 to Canadians facing housing affordability challenges
• Tax-Free First Home Savings Account—allowing prospective homeowners to save up to $40,000 for a down payment
• A two-year ban on foreign buyers purchasing non-recreational, residential property in Canada

Defence

It was no surprise to see additional defence dollars in Budget 2022—particularly with the recent invasion of Ukraine and pressure from NATO for Canada to reach its 2 per cent defence spending targets. Canada’s recent announcement that it would launch formal negotiations to purchase 88 F-35s also signalled a willingness from Trudeau to commit dollars to defence. Department of National Defence’s budget will be increased, by approximately $8 billion—but won’t be allocated all in one year. Additional defence dollars include:

• $6.1 billion over five years, starting in 2022-2023, with $1.3 billion in remaining amortization and $1.4 billion ongoing to the Department of National Defence
• $100.5 million over six years with $1.7 million in remaining amortization and $16.8 to strengthen leadership in the Canadian Armed Forces
• Intention to propose amendments to the Canada Shipping Acts and other acts, including to enable the proactive management of marine emergencies and to cover more types of pollution

Climate

Last month’s announcement of $9.1 billion in new GHG emissions reductions investments signalled a deeper commitment to address climate change. Budget 2022 went further, through the following investments:

• $2 billion funnelled to Canada’s critical minerals to support electric vehicle (EV) battery supply chain to ramp up extraction of processing critical minerals (nickel, lithium, cobalt, and magnesium)
• Tax credit for businesses and industry who install carbon capture systems
• To reduce emissions from medium- and heavy-duty vehicles (MHDV) the federal government will aim to achieve 35 per cent of total MHDV sales being ZEV by 2030
• $500 million in large-scale urban and commercial ZEV charging and refuelling infrastructure

Innovation

• $750 over six years, starting 2022-2023 to further support growth and development of Canada’s Global Innovation Superclusters
• Proposal to establish Canada Growth Fund to attract substantial private sector investments
• Intention to create an operationally independent federal innovation and investment agency and proposes $1 billion over five years to support its initial operations
• $96.6 million over five years, beginning in 2022-2023, and $22.9 million ongoing to support diverse Innovation, Science and Economic Development Canada (ISED) programming

Health

• $5.3 billion over five years, starting in 2022-23, and $1.7 billion ongoing, to Health Canada to provide dental care for Canadians.
• $20 million over five years, starting in 2022-23, for the Canadian Institutes of Health Research to support additional research on the long-term effects of COVID-19 infections on Canadians, as well as the wide impacts of COVID-19 on health and healthcare systems
• $20 million over five years for the Canadian Institutes of Health Research to ramp up efforts to learn more about dementia and brain health, to improve treatment and outcomes for persons living with dementia
• $30 million over three years, starting in 2022-23, to the Public Health Agency of Canada, for the Centre for Aging and Brain Health Innovation to help accelerate innovations in brain health and aging
• $140 million over two years, starting in 2022-23, to Health Canada for the Wellness Together Canada portal so it can continue to provide Canadians will tools and services to support their mental health and well-being
• $115 million over five years, with $30 million ongoing, to expand the Foreign Credential Recognition Program and to help up to 11,000 internationally trained healthcare professionals per year to get their credentials recognized and to find work in their field

Opposition party reactions

NDP: NDP Leader Jagmeet Singh outlined that Budget 2022 lines up with the agreement made between the Liberals. He stressed that the additional investments Canadians see in the Budget for Indigenous housing would not have been there if not for the NDP pressing for additional dollars. Ultimately, the leader outlined that this is good faith shown by the Liberals in their promise to uphold NDP priorities.

Conservative Party: Unsurprisingly, the Conservatives sharply criticize the budget. Leader of the Conservative Party, Candice Bergen, highlighted that, “it’s not a responsible budget—it’s an NDP budget.”

Bloc Québécois: The Bloc Québécois denounced the absence of an increase in health transfers to the provinces, with Bloc Leader Yves-Francois Blanchet stating, “health systems are suffocating.”

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