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Sophie Chatel talks about Federal Budget 2024

by Charles Dickson
Ottawa
Apr. 18, 2024
Following the Trudeau government’s release of the federal budget last week, Pontiac MP Sophie Chatel had a conversation with THE EQUITY in her parliamentary office in Ottawa on few of the key elements of the 416-page document.
Madame Chatel, who has a Bachelor of Laws, a Master of Taxation, is a member of Chartered Professional Accountants of Canada, and has worked with Canada Revenue, the Department of Finance and was head of the Tax Treaty Unit at the OECD’s Centre of Tax Policy and Administration in Paris, began the conversation with an observation informed by her international experience.
CHATEL: Working at the OECD is working on the international scene, and so what it allowed me is to look at Canada’s economy compared to where the G7 countries are going. I never look at Canada in a silo, but I look at our financial position, our growth, our prospects in comparison with where the G7 is going. And Canada will experience the highest economic growth of G7 countries in 2025.
To me, this is the light at the end of a long tunnel of pandemic and inflation crisis, supply chain productivity. What it means is that we have to be very well-positioned for that economic growth. You want to make sure that everybody is in position to contribute and participate in that growth, especially the young generation, especially the millennials and the Gen Z, to make sure they have a fair shot at success.

EQUITY: Canada is projected to have a $40 billion deficit next year, and we haven’t heard anything about any plans to balance the budget.
CHATEL: Not yet, no. When I look at our debt, again, I compare it to G7, for the same reason. We have the best the debt-to-GDP ratio of the whole G7 – we have had it for 10 years and we continue to have it.
EQUITY: What about our deficit-to-GDP ratio?
CHATEL: The deficit-to-GDP ratio is also the lowest of the G7, the best, and is expected to drop further. The deficit is interesting because there are people who are obsessed about the zero-deficit line, really balancing. As you know, none of the big economies are doing that. Why? Because we are in an economic transition.
EQUITY: We seem to be in transition a lot of the time.
CHATEL: Well, perhaps, but what is key at this time is really to invest in infrastructure, technology, clean energy, investments that make Canada a place where people really want to invest. By the way, in foreign direct investment, Canada is at the top of destinations in the G7 for foreign direct investment right now. In absolute dollars, the US is first, we come second.
EQUITY: It sounds like we ought to be in very good shape, compared to everyone else, at least, but we have these huge problems.
CHATEL: What I look at is the composition of the debt, what we are investing in. If you have a deficit and you look at what are the big items that cause that deficit and, like an individual, if you borrow to buy groceries, then you have an issue and I’m not comfortable with that. But when I see that our investment is for infrastructure, housing, technology and the clean energy credit to put Canada in a position to succeed, then I’m fine with that. I wouldn’t be fine if compared to the other markets we were not in a good position, but we are in the best position.
But there’s two big risks. One is that the younger generation won’t get a fair chance at succeeding in that economy. And there’s also more vulnerable people right now who are also falling behind with the inflation crisis. I think there is a real danger that we are leaving people behind. For the first time, I see a budget that talks about the millennials and the Gen Z, and that asks people with a little bit more [wealth] to think about what kind of Canada they want to live in, and make sure they step up and contribute to make sure the young people can study and have housing.
EQUITY: I am sure part of Canada’s competition with G7 countries is to hold onto the wealthy people in our country and not have them go to other countries where the tax regime is less expensive for them. Was that part of the analysis when you were talking about a capital gains tax for Canadians earning over $250,000?
CHATEL: You and I are taxed on 100 per cent of our income. If you are wealthy enough to have a capital gain over $250,000, you used to be able to exclude half of your profit from your taxable income, and you were taxed on the other half. Now, under this budget, the portion that will be taxed is increasing from 50 per cent to 66 per cent. It used to be 75 per cent until the early 1970s when it was moved to 50 per cent, and now it is being moved to a point in between. We will treat it more like any other type of income.
Ninety-nine point eighty-seven per cent of Canadians will never have that capital gain in their life. The 0.13 per cent that have more than $250,000 of capital gains, we will ask that their benefit from earning capital gain will be a bit smaller than it used to be. In the United States, all capital gain is taxable as income. In Canada, your principal residence is exempt from capital gain taxation; it is not in the US.
EQUITY: In a way, this has come across as finally, Canada is doing something about taxing the richest people in our country, but in truth, they are paying tax on a smaller percentage of their income than the rest of us are.
CHATEL: Yes, and they’ll continue to.
EQUITY: Why is that such a good thing? Where is the justice in that?
CHATEL: It’s to attract investment and capital. I think that is why Canada had previously decided to lower its inclusion of taxable gain to 50 per cent. It is a big incentive to earn capital as compared to most Canadians earning income.
EQUITY: Let’s turn to housing, another key feature of the budget. Why is housing too expensive?
CHATEL: At the basis, it is supply and demand. So, it is really the market operating, there really is not enough supply for the demand, so the prices are going up. That’s the main reason housing is not affordable right now. So, the solution is to increase supply.
And we have been listening to the reasons why there is not enough supply. For entrepreneurs, there is the difficulty of obtaining building permits. One of the main issues right now is they need to borrow and the interest rates are high. One of the solutions is to help with loans, with low or no interest to help construction companies. We cancelled the GST on new construction of rental units. But a big obstacle is infrastructure – municipalities do not have the money to build the infrastructure for new housing projects like sewage systems, roads, garbage disposal. That’s why we have announced big investments in infrastructure.
EQUITY: You’ve talked about the difficulty that young people are having in buying a house, so the solution to that problem is to increase the supply of houses so that the supply comes down.
CHATEL: There are three ways. The first to increase supply is to help entrepreneurs to build.
EQUITY: Do you have any way of ensuring that the cost of housing will, in fact, come down?
CHATEL: Usually, the market is doing it. If you overprice your condo, then I’m going to go somewhere else. That’s what we see in the food industry. The lack of competition in the food industry is what keeps prices up. If there is no collusion, the supply should reduce the cost of everything in the housing market. But it will still be high, because we cannot change the housing market in a year.
The second thing we’re doing is allowing the Gen Z and millennials to buy their first home. We are extending to 30 years the amortizing period for first-time buyers, starting in August 2024, to allow them to be part of the market, to be part of the success, having their family, having this safe place they call home.

Another thing is we doubled the amount you can take out of your RSP to pay for your home. We have the renter’s bill of rights to protect tenants from renovictions, so I think that charter will provide a lot of safeguards for people. And if you pay your rent reliably, that will go into your credit, and then you can get better interest rates.
EQUITY: You’re enabling renters to get access to a loan, a mortgage, and enabling people to draw out $60,000 out of their RSP, if they have it, all of which will put more money into the housing market so they can afford to pay high prices for houses? Is that not inflationary, is that not working against your other agenda which is to bring prices down?
CHATEL: Well, I think that if the supply increases, and you are a young person and you are able to buy your first home, then you will leave your apartment for people who right now struggle just to find an apartment, so I think it’s good that those who can go into the market and acquire a condo and leave their apartment for those that are climbing the ladder as well. So, I think it’s a good thing, and I don’t think it’s going to hurt the market, to the contrary.
If you are able to build more houses and people creating rental units within their own homes, I think it will be a solution in the coming years that will allow Gen Z and millennials to be part of the middle class. I think there is a real risk right now that we are leaving people behind, and that’s our chance to do something about it.
EQUITY: Protection of the middle class has been the mantra of the Justin Trudeau government since he was first elected as prime minister, and here we are, quite a few years later, you are saying the middle class is still very much in jeopardy.
CHATEL: Everywhere, and that is the inflation crisis, not just in Canada, everywhere. Government has to invest in their young people, and that is what we’re doing.
EQUITY: Aren’t you getting to it a little late?
CHATEL: Well, was it like this pre-pandemic? There was no big housing bubble, no inflation crisis. It all happened very fast, and that is where we are now. Even if you have a good salary, you struggle to buy your first home, and that is new, it hasn’t been like this in Canada.
EQUITY: The banks are hugely profitable institutions in this country. For someone working for a living, trying to make ends meet, it seems shocking to hear how much money the banks boast about making each quarter. They should be very happy about all the new customers that you are driving into their branches to get mortgages.
CHATEL: That’s why we had the one per cent tax on the banks a few years ago. It was a big tax on banks.
EQUITY: One per cent is a big tax?
CHATEL: It was a big revenue producer.
EQUITY: You’ve talked about how the inflationary effects are a consequence of the pandemic, in terms of housing costs and other inflationary trends. The pandemic has really been the sea change.
CHATEL: That was one of the biggest events, all the economies around the world stopping, basically. We like to forget, but it was a big international crisis. And when you have economies shutting down, as it did for more than a year, on and off, it was a hugely disruptive event economically. Climate change is really affecting our economy, the cost of wildfires, losing your whole village. The cost of insurance goes up to the roof, some people cannot now get their homes insured. Floods, Fiona, huge devastation. The costs on municipal infrastructure. Heat-flation – the fact that growing food is becoming more difficult and uncertain, it drives the cost of food higher. There is the climate crisis, the cost of extreme weather events, the covid economic shock, and the disturbance of the supply chains, but also the disturbance in universities and the ability of people to get degrees, the war in Ukraine is very disruptive. So, a lot of things are happening that created the inflation and the slowdown in the economy. And if you are a young person starting your life in this disturbing period, you want to know that your government is aware of your difficulty and has a plan so that when the economy picks up again in 2025, as projected, you will have a fair chance to succeed. But you need an education, you need to pursue your dream, realize your potential. But the obstacle to that is housing and affordability.
EQUITY: Food is a big part of affordability. Profits have increased something like 46 per cent since the beginning of the pandemic for the monopolies that dominate the Canadian food industry. What are we doing about that issue?
CHATEL: Increasing competition.
EQUITY: How?
CHATEL: Francois-Phillippe Champagne (federal minister of innovation, science and industry) announced a series of measures to enhance competition in this industry.
EQUITY: He’s the guy who came down in favour of allowing the telecom monopoly to continue last year with the merger of Rogers and Shaw. If he is going to break up competition somehow, that will be very interesting to see how he’s going to do that. But does this budget do anything about trying to relieve the difficulty on the part of consumers trying to deal with the high cost of eating?
CHATEL: Yes (listed numerous efforts to stabilize the cost of groceries, empower the competition bureau to crack down on unfair practices block corporations from stifling competition, among other ongoing measures). And to strengthen local food services, the budget proposes $62.9 million over three years to renew and expand the local food infrastructure fund that supports community organizations across Canada to invest in local food infrastructure. This will be good for the Pontiac – buy local. There will be lower costs and fairer treatment for farmers, including an obligation by businesses that sell agricultural equipment to repair it at reasonable costs as a more affordable option for farmers than buying new equipment. There will be $64 million to support a $250,000 interest free limit on Advance Payment Program loans per farmer. That is big for farmers, so they have the right to repair. And up to $1.25 million on the sale of family farms will now be fully exempt from taxes, with partial exemption for an additional $2 million. This is excellent news because, after years of dedication and hard work, it will help farmers secure a comfortable retirement.
EQUITY: It’s good you’ve mentioned farmers, there are farmers who are very unhappy. Here and all over the world, farmers are driving their trucks and tractors to capital cities to protest the increasing difficulties they encounter in trying to feed the planet. Many of them will point to the federal tax on fuel, the carbon tax, as a problem that is affecting them because they are running big machines and trucks all the time, which has the knock-on effect of raising the cost of food.
CHATEL: I think there is disinformation about carbon pricing. All countries are putting in place carbon pricing, either emission trading, or not. Carbon pricing is a conservative philosophy: let the market move the economy away from dependency on carbon, don’t intervene. Conservatives around the world are choosing cap-and-trade and a carbon pricing system, it just puts a price on carbon. We’re not telling you that you cannot buy an SUV, we just make it more expensive.
EQUITY: You are a farmer on a combine or on a big truick or tractor and you don’t have the choice to drive a Honda Civic, you’re driving a massive machine and you are being punished for the privilege of trying to feed the world, and it’s not an optional thing. They can’t go and buy an electric John Deere.
CHATEL: If there is no option, I agree with you.
EQUITY: Well, there’s no option.
CHATEL: I feel a lot of support for farmers who have to buy a lot of fuel for grain dryers, and there is no clean energy alternative right now, which is why I am going to support a bill that . . . although it won’t apply to Quebec, because Quebec has a cap-and-trade system.
But if we don’t have a carbon pricing system that helps the economy move away from carbon emissions, then what are the alternatives, and do we want these alternatives? Do we want command and control that tells farmers what to buy and what not to buy? Or do we make massive investments in developing alternatives, and spend billions and billions of dollars in public money to invest in alternatives? Well, studies have been done, when conservatives chose the carbon pricing as a way to move the economy away from carbo. It was because it was the cheapest way to do it, to use the market dynamic to do that. If you want to invest massively, that means we go into debt seriously. Now if you’re worried about a deficit of $40 billion, then buckle up.

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