During last year’s federal election campaign, the Liberals promised a welter of policies to make it easier for Canadians to buy homes, including four initiatives for first-time buyers.
Those four proposals – the biggest of which is the Tax-Free First Home Savings Account – were projected to cost $4.7-billion starting in fiscal 2022 through to fiscal 2026. The FHSA program, which is a specialized TFSA, was estimated to cost $3.6-billion; more funding for rent-to-own projects, $550-million; enriched tax credits for first-time buyers, $457-million; and an extension of the First Time Home Buyers Incentive, including more flexible criteria, at a cost of $90-million.
Flash forward to last month’s budget, and that total has fallen significantly, to just $1.3-billion, even by the most generous accounting. The cost of the FHSA program is responsible for most of that drop. The budget estimates the measure will cost $495-million through to fiscal 2026, down 86 per cent from the estimate.
In part, that’s because the program starts a year later than envisioned in the election platform. The gap lessens somewhat if you compare the first four years of the program’s existence. The budget proposes to spend $725-million over four fiscal years, still a decline of 80 per cent from the platform.
The projected cost of the rent-to-own program through to fiscal 2026 has declined, too, falling 82 per cent to $95-million.
The cost estimates through to fiscal 2026 for the other two programs have risen, with projected outlays for the incentive program nearly doubling to $193-million, and the predicted cost of the tax credits increasing nearly a fifth to $545-million.
But there’s a caveat: some of those expenditures are offset, or more than offset, by reallocations from funds detailed in earlier budgets.
In the case of the home-buyer incentives, the reallocations from those earlier budgets are higher than the budget for the new one, for a net savings of $56-million. The entire budget for the rent-to-own policy is offset by such reallocations. The Liberal platform made no reference to the idea of reallocation, instead referring to the measures for home buyers as “new investments.”
Accounting for those reallocations, the budget proposes to add $984-million through to fiscal 2026 on the four initiatives for first-time buyers – a 79-per-cent decrease from the expenditure levels in the Liberal platform.
Some of that drop could result from comparatively conservative assumptions on the part of the Finance department. The Parliamentary Budget Officer issued a costing estimate last week for the FHSA that was much more in line with the projections in the Liberal platform (which were costed by the PBO) than those in the budget. The PBO estimates that the program will cost $3.2-billion through to fiscal 2027, compared with the $725-million in the budget for that same time period.
The cost of the FHSA program depends on the collective decisions of Canadians, and how much money they decide to put into that savings vehicle. If the PBO is right, the costs will be higher than the budget forecasts, and the apparent gap in outlays compared to the promises made in the Liberal platform would shrink.
In a statement, the Finance department said the FHSA is one of a several measures aimed at ensuring that younger Canadians are able to own a home. Indeed, the budget proposes policies to assist municipalities in accelerating the construction of housing and to tax those who flip houses, for instance.
Still, it’s clear that at a minimum, the amount of federal help that the government is bringing to first-time buyers is likely to be much lower than promised during the campaign – particularly if the reallocation of existing spending is taken into account.
Responding to an item in last week’s Tax and Spend newsletter on parochial tax measures, Maureen Vance of Toronto asked about the inclusion of Ontario’s staycation tax credit in that list. Practically speaking, she noted, it would be difficult to include non-residents.
“So how would Ontario offer such a credit to residents of other provinces?” she asked.
True enough, the design of the staycation tax cut is such that it would be (at a minimum) extraordinarily complex to include anyone who is not an Ontario resident. Unless, that is, they moved to Ontario before Dec. 31 (and kept their receipts).
More broadly, Ontario could have chosen to simply reduce the provincial portion of the HST if it wished to encourage consumer spending. That would have had the advantage of being less administratively cumbersome. But it would have been potentially much more expensive. The staycation tax credit is slated to cost the provincial treasury $270-million this year. A noticeable cut in the sales tax rate would be much more costly.
On the other hand, the requirement to file paperwork to receive the tax credit also makes it much more visible than a reduction in sales taxes – a feature, not a bug, from a government’s point of view.
Housing’s sweet spot: There is no national housing shortage, but there is an enormous surplus of credit that has created the economic equivalent of a sugar high, argues David Williams, vice-president of policy at the Business Council of British Columbia. In a recent blog post, he writes that Canadian housing stock, excluding empty homes, rose by 907,000 in 2021, just shy of the 914,000 new households created last year. That tiny gap is an implausible explanation for the surge in housing prices, he says. Much more likely: negative real interest rates that effectively mean lenders are paying homeowners to take on outsized mortgages.