Making sense of the 2020 fall economic update
Gen Squeeze digs into the federal government's recent fall economic update and what it means for younger generations.

Since the pandemic postponed the 2020 federal budget indefinitely, the recent fall economic update is the closest thing we will get to a budget this year.

If you are looking for details about the Government of Canada’s plans to secure vaccines and other measures to fight the spread of Covid-19 before those vaccines are widely available, then you’ll find plenty of details in the fall update.

If you are looking for details about #BuildingBackBetter, you’ll find the economic update reads more like a plan to deliver a bigger plan next spring with the 2021 budget.

Pre-pandemic, Gen Squeeze visited Ottawa to encourage federal departments to have the 2020 budget include:

  1. a national tax on non-residents owners of housing;
  2. a federal market rental preservation program incentivizing landlords to repair and retrofit existing relatively affordable rental homes;
  3. implement the affordable child care for all plan;
  4. introduce legally binding targets to get us to net-zero climate emissions by 2050; and
  5. improve the current annual reporting of age trends in public finance.

Happily, the text of the fall economic update shows signs of progress for all five asks. The update signals there is a plan to advance 1, 2, 3 and 4; and the update includes incremental, albeit insufficient, progress on 5.

In other words, the text of the update matters for signaling priorities. But, ultimately, the government has many details to work out, and dollars to invest, before we can judge that we have won victories in these five areas. See below for more details.

Housing

A national tax on non-resident owners

The fall economic update commits to implementing the new tax. The details are entirely TBD. Given that housing unaffordability has only increased over the pandemic, now more than ever we need our governments to use every tool in the tool box to rein in home prices, and raise revenue in fair ways to invest in other programs that promote affordability. A tax on non-resident owners of housing is low-hanging fruit that contributes to these objectives, and helps to signal that housing needs to be a place to call home, not a way to get rich.

Still, we know this new tax will have limited impact on housing affordability. Unaffordability has continued to grow in BC and Ontario where these provinces have already implemented similar taxes. Check out this blog by Better Dwelling for more analysis.

Energy retrofits for housing

The federal government has allocated $2.6 billion over 7 years to retrofit housing to improve energy efficiency. Some of this money may help landlords. The economic update also promises to provide additional details in the coming months about a “low-cost loan program” that will be available to landlords.

Expansion of First-Time Home-Buyers shared equity program

The economic update added details about the anticipated expansion of the First-Time Home-Buyers Shared Equity program. The expansion will make the program more relevant in Vancouver, Toronto and Victoria by ensuring that the housing prices typically encountered by first-time home-buyers in these regions qualifies for the program. While any subsidy for buyers risks fueling further price increases that grow the gap between home values and local earnings, CMHC research shows that its shared equity approach is less likely to inflate prices by comparison with changes to mortgage rules that would make it easier to borrow more by lengthening the amortization period or reducing the interest rates at which buyers need to qualify.

The federal government needs a goal for the housing system

Ultimately, we need the government of Canada along with provincial governments to embrace CMHC’s goal that all residents should be able to afford a home that meets their needs by 2030. Canada needs a comprehensive plan to make this happen, which the National Housing Strategy does not yet offer. A comprehensive plan will look something like what Gen Squeeze has proposed in our housing gameplan. This will require government to embrace the idea we no longer want home prices to grow faster than local earnings, and to adjust all of their policies accordingly. For this, we need governments to revisit the many ways in which their policies incentivize or entangle many Canadian households to count on high and rising home prices for their security and wealth. By inclining Canadians to bank on rising home prices, these policies reinforce feedback loops that result in rising home prices, which ultimately undermine affordability for those who follow in our footsteps.

Child Care

The text of the fall economic update is really strong about child care. It promises to lay the groundwork for a pan-Canadian child care system to address the She-cession caused by the pandemic, and promote the many economic and gender equality goals initially identified 50 years ago in a Royal Commission on the Status of Women.

While the words are strong, many of the dollars are missing. This system requires an infusion of about $10 billion a year. A solid incremental investment would be $2 billion – as called for by Child Care Now, the umbrella of advocates of which Gen Squeeze is part.

But the fall economic update only offers $585 million spread over the next 5 years. That won’t cut it. So child care will remain hard to find, and cost another rent- or mortgage-sized payment for families as they struggle with already higher housing expenses amid a recession that has harmed many families ability to make a living.

Five-year targets on track to net-zero by 2050

The fall economic update re-affirms new federal legislation mandating legally binding targets so Canadians eliminate our net carbon emissions by 2050 to ensure we benefit from keeping global temperature increases below levels that put our health, economy and planet in jeopardy.

This legislation is really important. But it doesn’t offer any legally binding targets for 2025, and makes us wait for a 2030 target. That’s not good enough, as our Co-Executive Director Sutton Eaves explains in this blog.

Annual reporting of age trends in public finance

In the 2019 federal budget, Gen Squeeze secured a historic change to government budgeting practices by having the finance department publish (what we believe was) the first ever inter-generational analysis of spending. See this blog for more details. Formally integrating an adequate age analysis into public finance decision-making is necessary if our governments, media and citizens are to monitor effectively the degree to which governments budget fairly for all generations.

The good news is that the fiscal update formally replicates the intergenerational analysis from 2019. This means that for most announcements in the fiscal update, the federal government considered whether they may benefit all age groups similarly, or benefit some age groups more than others using the following metric.

Such a review is good, and definitely part of an adequate age analysis of public finance. However, it replicates the same weakness that we identified in the 2019 budget. The current approach may describe the age implications of each “tree” in the budget’s “forest”; but it fails to provide a comprehensive analysis of what the “forest” looks like more generally.

Had the fiscal update delivered this “big-picture” analysis of age trends in public finance, it would support our MPs, media and citizens to ask: why does this update promise $1 billion in new funding for long-term care for seniors over the next two years, but only offers half that amount over five years for child care. Why not invest as urgently in both areas?

Similarly, an adequate age analysis should inform the fiscal update’s presentation of a “fair tax system.” Unfortunately, this update glosses over whether the current tax system is up to the task of collecting revenue in sufficient levels to ensure we minimize the degree to which we leave large unpaid collective bills for younger Canadians and future generations to pay (which will only exacerbate the large environmental debts we are already leaving them). Canada needs this analysis more than ever, because the fiscal update reveals we are incurring a $382 billion federal deficit in 2020; and plan to be spending billions more than the government is collecting even five years from now. So this fiscal update looks very much like it is kicking the can down the road for someone else (aka younger Canadians) to clean up later on.

You will have seen in Gen Squeeze’s work that we know there is an important role for governments to invest new funding to address the child care challenges, housing challenges, climate change challenges, pharmacare challenges, long-term care challenges, and so on. But we can’t be a nation that makes smart investments without being a nation that talks seriously about paying for the spending fairly: fairly between classes, races, genders, etc., and, yes, fairly between generations. Although this fiscal update implies we need a serious conversation about a “Fair Tax System,” it’s tinkering around the edges of the dialogue that is necessary. Now, more than ever, we need to be sure that every generation is contributing in accordance with the expenses they are leaving, the benefits they are using, and in proportion to their ability to pay. This is going to require a broader conversation about the distribution of wealth in Canada. We will work to advance this dialogue with Canadians and our government officials in the months ahead.

Paul Kershaw
About
Dr. Paul Kershaw is a Professor in the University of British Columbia's School of Population and Public Health, and the Founder of Generation Squeeze.
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