Assessing the Canadian Federal Budget 2024: Does it Fulfill the Promise of 'Generational Fairness' for Gen Z and Millennials?

Finance Minister Chrystia Freeland Unveils Federal Budget Addressing Housing Needs for Young Canadians in Ottawa

Canada's 2024 federal budget has been revealed, with a notable focus on rectifying what it terms as "generational fairness" for Millennials and Gen Z.

The government has pledged to tackle the distinct obstacles encountered by younger demographics, which encompass issues such as housing affordability, employment opportunities, and the steep expenses of day-to-day living. The emphasis on generational fairness ostensibly seeks to create equitable conditions in rental and housing sectors, among other areas.

"Following the budget presentation, Finance Minister Chrystia Freeland expressed determination in advancing efforts to accelerate home construction," she remarked. "We are dedicated to reducing the burden of living expenses. Our goal is for Millennial and Gen Z Canadians to anticipate the future with optimism, not apprehension."

However, whether the budget effectively fulfills these objectives remains subjective.

Housing in the budget spotlight

Undoubtedly, the budget places significant emphasis on addressing housing affordability, catering to both renters and prospective homeowners alike. Out of the anticipated $53 billion in new spending, a substantial $8.5 billion allocation is directed towards housing initiatives.

Key provisions include raising the withdrawal limit for the Home Buyers' Plan, a program enabling taxpayers to access their retirement savings tax-free for home purchases, from $35,000 to $60,000. Moreover, certain taxpayers will benefit from an extension of the repayment period for the Home Buyers' Plan, easing the financial burden associated with home ownership.

Although the benefits extended to first-time homebuyers are certainly welcomed, some economists contend that the core of the housing affordability challenge doesn't stem from demand but rather from a shortage in supply.

Addressing this concern, the budget introduces incentives aimed at stimulating the construction of purpose-built rental housing. These incentives include improved write-off rates for specific rental properties, opportunities for interest deductibility, and GST rental rebates, all geared towards bolstering rental housing supply.

These initiatives are strategically crafted to provide additional incentives for the expansion of rental housing, a segment where many Millennials and Gen Z Canadians typically find accommodation. The federal housing plan sets ambitious targets, aiming to deliver an additional 3.87 million new homes by 2031. However, it's worth noting that nearly half of these homes might have been constructed regardless of government intervention.

Moreover, the federal government is actively exploring the possibility of developing homes on various properties owned by entities like Canada Post and National Defence throughout the country, signaling a multifaceted approach to address housing challenges across diverse regions.

Recent Canadian government initiatives demonstrate a clear focus on renters, with efforts underway to establish a $15 million tenant protection fund aimed at mitigating the impacts of escalating rents and renovictions. Additionally, the proposal for a Canadian Renters' Bill of Rights aims to safeguard the rights of tenants.

A particularly noteworthy initiative involves incorporating renters' payment history into their credit scores. This measure holds significance as it could facilitate renters' transition towards homeownership by improving their eligibility for mortgages.

Other measures aimed at younger Canadians

As climate anxiety becomes more prevalent among Millennial and Gen Z Canadians, the federal budget introduces several incentives to bolster the clean economy. Notable measures include investment tax credits aimed at activities related to clean hydrogen, clean electricity, and clean technology. Additionally, investment tax credits support the production of electric vehicles and their components, aligning with efforts to combat climate change.

In a bid to alleviate financial burdens on students, investments in student grants and interest-free loans are also outlined in the budget, with an estimated cost of $7.3 billion for the upcoming academic year.

While these initiatives target pressing issues for younger Canadians, their efficacy in achieving their intended outcomes remains uncertain. The impact of these programs will likely be closely monitored in the coming years.

Concerns have been raised regarding the potential inflationary effects of the federal spending outlined in the budget, particularly in light of the peak inflation rate of 8.1% recorded in June 2022. Recent data from an Angus Reid survey suggests that younger Canadians are among the demographics most affected by inflation.

The projected deficit for the fiscal year 2024-25 stands at $39.8 billion, with no immediate plans to achieve a balanced budget within the next five years. These figures underscore ongoing fiscal challenges and raise questions about the sustainability of government spending in the face of inflationary pressures.

Capital gains changes

To support the new budget initiatives, the federal government plans to raise revenue by increasing the capital gains inclusion rate. Effective from June 25 of this year, 66% of capital gains earned by corporations and trusts will be subject to income tax, up from the previous rate of 50%.

For individuals, the higher inclusion rate will apply to capital gains exceeding $250,000 in a year. The federal government estimates that this policy change will impact only 0.13% of Canadians, with an average income of $1.4 million. Over the span of five years, this adjustment is projected to generate $19.4 billion in revenue.

Canadian entrepreneurs stand to potentially benefit from lower capital gains taxes through the Canadian Entrepreneurs' Incentive, which reduces inclusion rates to 33%.

For the vast majority of Canadians, approximately 28.5 million individuals, who are unlikely to earn significant capital gains next year, these changes are unlikely to result in a higher tax bill.

It seems that efforts are being made to uphold the principle of "generational fairness" that has been championed as a guiding principle for the federal budget. However, whether these initiatives will effectively fulfill this aspiration remains a matter of speculation.

Source: theconversation‍