Along with the economic situation, the state of Canada’s public finances was on analysts’ radar with the approach of the latest federal budget. After the sharp increase in government spending induced by the pandemic, the question of balancing the budget has been regularly back on the table. Last year, without formally setting a target date, Minister Freeland had talked about a possible return to a balanced budget in 2027-2028. According to her new projections, that will not be possible, due mainly to the economic slowdown and the level of government spending. Without specifying a timeline, she does, however, promise spending controls that will help to gradually reduce the deficit.
While it doesn’t include any sweeping fiscal measures such as broad-based tax cuts, for example, this third Freeland budget contains programs that could impact many Canadians, especially in terms of the cost of living and health care.
Here are 10 of the most noteworthy initiatives.
1. A new “Grocery Rebate”
The budget introduced the creation of a “Grocery Rebate” to help Canadians cope with inflation, which is hitting the cost of groceries particularly hard. This measure will take the form of a GST credit, a program that is already in place, and will target lower-income households. The amount of the rebate will vary depending on the household situation, providing as much as $467 for a couple with two children and $234 for a single person with no children, while seniors will receive an extra $225, on average. The government estimates that 11 million Canadians will benefit from this assistance, at a cost of $2.5 billion.
2. Moving toward a new Dental Care Plan
The new Canadian Dental Care Plan announced in the 2022-2023 budget will be taking effect in 2023. As expected, the plan will cover dental care for uninsured Canadians with annual family income of less than $90,000, with no co-pays for those whose family income is under $70,000. The budget provides financing of $13 billion over five years starting in 2023-2024, with $4.4 billion per year after that. It also provides $250 million over three years starting in 2025-2026, and $75 million per year after that, to establish an Oral Health Access Fund that will focus on the needs of vulnerable populations, as well as rural and remote communities.
3. Easier access to RESP funds, and more generous grants
In an environment of high inflation, the government wants to make it easier to access money saved in a registered education savings plan (RESP). Remember that there are limits on the RESP withdrawals that can be made as Educational Assistance Payments (EAP) during the first 13 weeks of an educational program. Minister Freeland proposes to raise the ceiling for these payments from $5,000 to $8,000 for full-time students and from $2,500 to $4,000 for part-time students. She also proposes to allow divorced or separated parents to open a joint RESP for their children, which will make it easier and more affordable for parents to save for their children’s education.
Similarly, Minister Freeland plans to increase the Canada Student Grants by 40%, which could provide up to $4,200 for a full-time student. She is also raising the interest-free Canada Student Loan limit from $210 to $300 per week of studies. Note that students over age 22 will no longer have to undergo credit screening to qualify for the federal grants or loans for students.
4. Higher alternative minimum tax
For very high-income taxpayers, the budget contains some significant changes to a provision known as the alternative minimum tax, which is intended to prevent these individuals from unduly reducing their taxable income by optimizing their deductions. The AMT rate will rise from 15% to 20.5%, although the basic exemption will also increase from $40,000 to $173,000. Note, too, that the government will now start including 100% of capital gains in its calculations. Under the current rules, only 80% of capital gains are taken into account. If you think that this measure will affect you, you will no doubt want to talk to your advisor and your accountant.
Still in the area of taxes, the government has confirmed the introduction of a 2% tax on share buybacks by public companies. The proposed tax will apply as of January 1, 2024 to the annual net value of share buybacks by public corporations and certain publicly traded trusts and partnerships in Canada. However, a company will not be subject to this tax in years when its gross buybacks total less than $1 million.
5. A commitment to energy transition
The plan announced by Minister Freeland to encourage energy transition could potentially have a major impact on the companies involved. Indeed, the budget provides total investments of $80 billion over 10 years to support Canada’s energy transition. Of this amount, $20 billion will go to the Canada Infrastructure Bank for strategic financing; $26 billion will be used to create the 15% refundable tax credit for investments in clean electricity; and $11 billion is for the creation of a 30% refundable tax credit for cleantech investments. These initiatives are in addition to the $23 billion for the creation of a refundable tax credit for clean hydrogen production investments that was announced in last fall’s economic update.
6. Better control of credit card fees
Do you run a business that accepts credit cards? The budget introduces a reduction in credit card transaction fees for small businesses. Under an agreement with Visa and Mastercard, over 90% of credit card-accepting businesses will see their interchange fees reduced by up to 27% compared to the existing weighted average rate. The government expects that these reductions will allow the small businesses in question to save about a billion dollars over five years. At the same time, there are measures to protect the existing reward points that Canadians receive from Canada’s large banks.
7. Better framework for electronic device manufacturers
The budget also contains a measure that might interest the many people who have a drawer filled with all kinds of old cellphone chargers. The government plans to explore implementing a standard charging port for electronic devices, a move it frames as environmental since it could reduce electronic waste. From the same perspective, the government intends to implement a “right to repair” by introducing a targeted framework for home appliances and electronics in 2024.
8. Cracking down on junk fees
In a similar vein, the government plans to better monitor the sometimes-elevated hidden fees charged by some companies, such as higher telecom roaming charges, event and concert fees, excessive baggage fees, and unjustified shipping and freight fees.
9. 988: three numbers to help prevent suicide
Mental health and suicide are issues of concern to many families. In this context, the Freeland budget proposes to provide $158.4 million over three years to support the implementation and operation of the new 988 telephone line. As of November 30, 2023, Canadians will be able to call or text 988 at any time to access suicide prevention services and receive mental health crisis support.
10. For improved service in airports
Finally, if you are among the many people who have recently gone through a chaotic experience at an airport, here’s some news that should interest you: the Freeland budget proposes to provide $1.8 billion over five years, starting in 2023-24, to the Canadian Air Transport Security Authority (CATSA) to improve service, reduce security screening wait times, and strengthen security measures at airports.
Of course, these are only 10 measures out of a budget that contains countless others. To go beyond this overview, you can check out the documentation released by the government, which you will find here. And feel free to reach out to your advisor, as well, who can throw more light on this subject as well as any other financial matters.
The following sources were used to prepare this article:
Actualis, “A post-pandemic budget?”
Financial Post, “Alternative minimum tax changes will make it harder for high-income earners to avoid paying taxes”; “Share buyback tax to raise $2.5 billion over five years, Liberals say.”
Government of Canada, “Budget 2023.”
La Presse, “Priorité à l’énergie propre et aux personnes à faible revenu”; “Les ultrariches paieront plus d’impôt.”
Radio-Canada, “Dépôt du budget fédéral : notre couverture en direct”; “Ottawa se lance dans la course à la construction d’une économie propre.”
The Globe and Mail, “Federal budget 2023: 7 key takeaways on climate, dental care and the deficit.”