Finance Minister Bill Morneau delivered the 2019 Canadian federal budget. Brian DePratto, Senior Economist, TD Bank, talks to Kim Parlee about how the budget could impact the average Canadian, what changed when it comes to taxes and any potential impact to the economy. Click here for the full TD Economics report.
Well, after much anticipation, the federal budget has been released. Brian DePratto is standing by in Ottawa. He's a senior economist with TD Bank. Brian, I want to jump right into it if I could. We'll get into the details, but overall, how did this budget strike you?
You know, I got a sense of deja vu reviewing this budget. It reminded me a lot of last year. So the government wound up with a little bit of a fiscal windfall, a bit of a different reason this time, largely on the personal tax side. And again, they've essentially decided to spend that. So they're not making the deficit any worse or anything like that, but they are kind of taking that windfall and sending it out there. So a lot of little measures, nothing that really moves the needle overall, but certainly a lot of moving parts and a lot to talk about.
All right, well, let's talk about some of those moving parts, and let's start with housing. A number of measures coming in for first-time homebuyers to incent the buying of housing, which is interesting given the fact they just spent the past few years trying to cool off the housing market.
That's exactly it. On the housing file here we saw, well, two changes. One simple one is the expansion of the homebuyer plan. So that's essentially you can take now $35,000 out of your RRSP towards your first home. That's up from $25,000.
The bigger one is the first-time homebuyer incentive. Here we're looking for more details, but in effect CMHC is going to kind of lend you part of your mortgage, 10%, on a new build up to a limit of about $500,000 thereabouts. And that's supposed to reduce mortgage payments, make it a little bit easier for people to get into the market, and of course drive up the demand a little bit as we bring more people in.
What do you think that's going to mean for the housing market? I mean, I know you made a note of it in the report that you just sent out. I mean, we're kind of bringing up demand. Is supply ready to handle that?
I think the answer there is no. So that's the other side of the coin. So when you look at the incentives on the demand side, we think in the near term that's something that would push up sales activity. That is going to push up prices a little bit. No big surprise there.
Now this budget does include a lot more money for the supply side, a lot of stuff targeted at the rental market in particular, which has been quite hot in Canada, very low vacancy rates. The challenge, of course, is that the demand measures, they're coming in pretty much today. The supply side takes a while here. And so that's where you get a little bit of a disconnect and again a little bit more of a challenge on the affordability side in the near term.
Let's talk about some of the other measures that came out. You have a title here called "All aspects of working life examined." They seem to be starting their journey into helping reskill Canadians right now.
That's exactly it. This seemed to be another key piece of the budget that they were promoting. So they're bringing in these retraining plans, retraining accounts. That's going to come in as part of your annual tax filings. And in effect what they're to do is they're going to build up an account for you. It's $250 a year. And as that builds, you're going to be able to use that to defray basically half the cost of retraining. So you can take that, pardon me, about every four years and get four weeks off. There's a lot of moving parts here. Forgive me. And this would be a lifetime maximum, if I'm not mistaken, of about $5,000 in usage. So again, the notion being making it a little bit easier for older workers, those kind of in the middle of their careers to adapt their skills to the needs of today and, of course, the needs we don't even know yet 10, 20 years down the road.
We've got a few other measures they talked about. We can talk a bit about just I'd say the beginning of something with pharmacare, stuff for seniors, but also green incentives. You're in luck if you want to buy an electric car.
That's right. So they've brought in a $5,000 credit on electric-vehicle purchases. That's up to a maximum of $45,000. So if you're thinking of buying one of those real fancy ones, sorry, you're out of luck. This is by and large modeled on some of the provincial programs we've seen. Looks a lot like Ontario's now-canceled program.
Bay Street's going to pay attention to this one as well. There are some changes to stock-option compensation getting capped.
That's exactly right. So with this budget, they've clearly taken aim at the C-suite. They're capping option payments at $200,000. This is on a go-forward basis, so any existing option grants would be exempted. Anything over the $200,000 are going to be taxed as income. Under the $200,000, you're going to be taxed as you are today.
Now there's a key exemption here. They are trying to carve out fast-growing startups. We know the startup scene uses option compensation in a big way to incent new ideas and basically save some money, for lack of a better term. We don't know exactly how they're going to define that yet, but they have indicated that they will keep those types of companies in mind and carve out a niche for them.
A bit of rapid fire year as well because there's a lot in here, as you mentioned. We're seeing the foundation laid, it looks like, for pharmacare in terms of an agency built to perhaps start buying drugs to keep costs down, and also pre-enrolling seniors for CPP. These seem, I think, as positives.
Yes. On the national pharmacare, we'll see how it shapes out. This is a bit of a wait and see. We had the Hoskins report. That was that expert panel on moving forward. Now we're starting to see some of those recommendations translated into a budget plan, money being allocated there. You know, we're still a long way away from a capital letter, a national pharmacare plan, but they are pushing in that direction.
And on the senior side of things, I think this is something we can all agree is a positive. What they're doing essentially is making sure when you hit 70, which is that limit for starting to claim CPP, that if you haven't enrolled, if you're leaving money on the table, they're going to make sure you're getting it. So they're going to auto enroll you if you've not actually enrolled. People have paid into that, and it's nice to see insurance that they'll be getting it.
One thing I think a lot of corporate business people will be looking to is not seeing a lot here from a corporate-tax-rate or business-tax-rate or personal-tax-rate perspective.
That's exactly it. The fall economic statement, of course, brought in the accelerated depreciation trying to goose up investment, and it seems the decision today is that is enough. We had very little here one way or another to address international tax competitiveness, any remaining issues from that global landscape point of view. Very little here for the corporate world.
Bottom line, Brian, what is this all going to mean for the currency markets? Do you expect to see much reaction in the loonie? What does it mean for the country's fiscal outlook?
Again, it's a story of little change. They've kept the deficit profile essentially in line with what they had before. The debt issuance a little bit higher here, but again, not dramatically different, a little more in the three- to five-year space in terms of that issuance side of things. But from a currency perspective, even from a monetary-policy perspective, we don't see this as a big game changer. Not likely to be impactful for the Bank of Canada. Not likely to be impactful for global markets.
Brian, great insights. Thanks so much for joining us.
Thank you for having me.