What's in the 2021 Federal Budget?
Gen Squeeze founder, Dr. Paul Kershaw, digs into the 700+ page budget to find the good and the not-so-good items, including housing, childcare, and more.

There's a lot in Federal Budget 2021.  Not only is it over 700 pages long, it lays out $101.4 Billion in new spending. But how is that spending allocated? Is there funding that will help young people? Is there funding to resolve housing affordability crises, make childcare affordable, and/or get us on track to preventing the worst of climate change? I went through every page of the budget to find out!

We break it down by six themes that align with the recommendations we submitted for the Budget, and which many of our allies delivered directly to their MPs and Finance Canada. Thanks to all of you who sent letters. It made a difference, as you will see in the analysis below. 

Themes:

 

Child Care

Something BIG happened in the Federal Budget this year. It fundamentally acknowledged the SQUEEZE, and took a major step toward easing it by responding (at long last) to our recommendation to build a $10 a day child care system across Canada.

For years, Gen Squeeze has been making the case that younger Canadians are squeezed by lower earnings and skyrocketing housing costs; and that the vice grip tightens further when they start their families, because the need to pay child care fees that cost another rent- or mortgage-sized payment.

Happily, the Government of Canada finally agrees. As the 2021 Federal Budget observes (p. 99):

“The high cost of child care – in some urban centres fees for one child can be as much as rent or mortgage payments – is a tax on a segment of the population that Canada requires to drive economic growth.  Young families are juggling sky high housing costs, the increasing cost of living, expected to save up for their retirements, while managing child care fees” (p. 99).  

So the Federal government plans to end this problem.  It will allocate $3 billion more for child care this year, and grow that annual increase to nearly $8 billion by 2025.  For the first time in my professional life, this is an example of the Government of Canada allocating real money for child care at a level that is well on track to meet our Budget-ask to build a strong child care system.  Ottawa suggests its initial investment this year will be sufficient to cut child care fees in half by 2022 on route to an average of $10 a day by 2025.  

Readers who know Gen Squeeze’s work especially well will recognize that we recommend child care fees should be capped at $10 a day, with no fees for low-income households.  So talk of “average $10 fees” suggests there’s still some work for us to do to improve the details of the Federal plan, because some families will pay more than the average.  More generally, we will need to ensure the total Budget for child care is sufficient to build a pan-Canadian system that is high quality, and delivered by talented caregivers who earn pay equity level wages. This will require us to pay renewed attention to provincial governments (outside of Quebec) which now have more reason than ever to find funding to match Ottawa’s important leadership. Happily, there is time to work out these details.

Now is a time to celebrate. A decade ago, Gen Squeeze first started framing a national child care system as “$10 a day” child care. In partnership with, and thanks to, the $10aday.ca movement that ran with this idea in BC, along with the national advocacy of Child Care Now, today’s Federal Budget has taken a massive step toward ensuring child care never again costs another rent- or mortgage-sized payment!

 

Housing

It’s good that the Federal government aims in this Budget to ensure child care no longer costs another mortgage-sized payment, because there is not enough policy change in the Budget to rein in skyrocketing home prices.

Given that a pandemic-induced recession has been unable to slow down home prices, it is time for all of us, including the Government of Canada, to concede that our housing system is badly designed, even if unintentionally, to tolerate home prices rising well beyond what locals earn.  

In response, we asked the Federal government to commit to the goal that all Canadians can afford a home that meets their needs by 2030, either as a renter or owner, backed by a comprehensive plan for achieving this goal.

Alas, this commitment is not in Budget 2021, nor does the Budget offer much new in terms of building a better, comprehensive plan to restore housing affordability forever. We badly need Ottawa to:

 

Reduce the collateral damage to the housing market that comes from reliance on historically low interest rates to spur economic growth.

The Federal Budget (p. 193) specifically concedes that “the low interest rate environment has contributed to a recent surge in housing prices…”; but does not yet offer any concrete plan to mitigate this harm.

 

Reduce the collateral damage to the housing market caused by incentivizing people to treat housing as a way to get rich because we shelter high-value homes over $1 million from taxation like we don’t shelter windfall gains from other assets in the stock market. 

Yes, this Federal Budget introduces a new tax on non-residents who park their money in homes they leave empty. Since similar taxes have already been tried in BC and Ontario, we know such measures are useful; but far from sufficient to reduce the over-commodification of housing. We need to do more to reduce this tax loophole if affordability is a priority.

 

Incentivize building new supply of co-op and purpose-built rental homes with enough bedrooms for families to raise their kids.

The 2021 Budget makes incremental progress on this front.  According to its own numbers (pp. 193-194), it will allocate enough funding “to speed up the construction, repair, or support of 35,000 affordable housing units.”  Unfortunately, that number is far short of the “more than 1.6 million Canadian households [that] live in core housing need,” according to the very same Federal Budget.

 

In sum, the 2021 Budget missed an important opportunity to make explicit that housing prices are NOT healthy when they rise faster than earnings.  Indeed, if affordability is our goal, then housing prices are only healthy when they stall (or fall moderately) so that earnings have a chance to catch up. Given that a majority of Canadians now share this view, we need the next Federal Budget to reorient all available policy tools accordingly.

 

Government debt and taxing wealth

The emergency response to the pandemic has added dramatically to the debt levels inherited by young people and future generations. Budget 2021 reveals that the first year of the pandemic generated a deficit of $354 billion. That’s over 15% of Canada’s entire economic output for the year, and it is a scale of deficit that I’ve never witnessed in my professional life. 

To be clear, the pandemic required massive investment to shore up people’s earnings, businesses, and housing security, while also accelerating investments in medical care to fight the virus. Incurring a large deficit for these purposes is reasonable. 

Problem is, Canada hasn’t just been incurring deficits during recessions. After accounting for inflation and economic growth, the debt per person under 45 was already three times higher before the pandemic took hold by comparison with four decades earlier when today’s aging population started out as young people.

It is not fair to grow constantly the debt per younger person without taking reasonable measures to ask those who have means to contribute more today to pay their fair share. So we need our government to start a serious conversation with Canadians about making sure we pay for operational spending now, rather than pass the bill to the future – as we encouraged in the lead up to Budget 2021. 

Any serious conversation about raising revenue needs to focus more on wealth, not just income – something this Liberal government has been slow to do.  Sure, the 2021 Federal Budget introduces a “Luxury Tax” for purchases of cars and aircraft over $100,000, and boats that cost over $250,000, along with the new tax on empty homes owned by non-residents that I discuss above. But these new taxes are nibbling at the edges, and are expected to raise just $1.3 billion over the next five years – which is barely a rounding error on the pandemic-induced deficit this past year.

We can ask more of those who are wealthy – and not just the uber rich with $20 million+ in assets. We should also focus more on people like me who have gained wealth windfalls from rising home prices, because I now live in a home worth over $1 million.  90% of Canadians do not.  The housing wealth I gained while sleeping, cooking dinner and watching TV is crushing housing affordability for those who follow in my footsteps. We can promote housing affordability and raise revenue to pay down government debt if we start thinking innovatively about taxing wealth, including by reducing tax shelters on high-value homes.

 

Climate Change

Research shows that the greatest risk to human health in the 21st century is climate change – a position held by the World Health Organization even amid the pandemic. Budget 2021 (p. 159) concurs, observing that “Climate change is the challenge of our times.”

In response, the 2021 Budget allocates $17.6 billion in climate solutions over the next several years to power a green recovery to the pandemic through substantial investments in renewable energy, home and building retrofits, public transit and job training. This is big investment by Canadians standards – although that isn’t necessarily saying much because our country is routinely identified as a fossil fuel dinosaur when it comes making the transition to a Net-zero Economy.

According to Budget 2021, Canada is on track to surpass the 2030 target it promised to meet as part of our Paris Climate Accord responsibilities.  If so, it would be the first time our country lived up to a carbon-reduction target. 

The problem is, it’s difficult to monitor the degree to which the 2030 target is sufficient for Canada to do our part to ensure that global citizens benefit from containing climate change to no more than 1.5 degrees Celsius.  This reveals that Canada needs a carbon Budget; not just a money Budget. In other words, we need future Federal Budgets to monitor and report annually on our nation’s spending of the atmosphere’s scarce capacity to absorb carbon.

Generation Squeeze worked hard to discourage wasting this scarce capacity by defending the constitutionality of pricing pollution in the recent Supreme Court’s recent review of federal legislation. This review confirmed it is constitutional to grow the price on pollution over time, and reduce taxes on earnings to compensate.

Building on this momentum, there remains work to do to transform the Government of Canada’s important plan to achieve net-zero emissions by 2050 into a robust, externally-validated, Carbon Budget with a clear accountability metric that begins no later than 2025.  The UK offers a strong model to learn from. Gen Squeeze will push for this improvement to be made to future federal budgets.

 

Wellbeing

Gen Squeeze encouraged Budget 2021 to redesign Canada’s fiscal and economic policy framework to move beyond a narrow focus on what grows the country’s “gross domestic product” in favour of focusing on what really matters – wellbeing.  We welcomed the opportunity to brief Finance Canada officials on a number of occasions about this shift in focus. By holding the Federal Budget accountable for promoting wellbeing, we increase opportunities to grow investments in the different social factors that shape health and well-being: like the investments in child care, housing and climate policy for which we routinely advocate.

The Federal government deserves credit for making real progress toward this goal.  Budget 2021 (pp. 410-412) introduces a “Quality of Life Framework” that examines policy in light of its impact on “health, housing, environment and safety,” and does so from the perspective of “equality – looking at the distribution of outcomes and opportunities across places and people,” and “sustainability – looking at whether today’s prosperity undermines future living standards.”

Still, many details remain to be established over the next year.  We will actively encourage Finance Canada to build the framework in light of the best available evidence.  This will include recommending that future Federal Budgets annually report about the ratio of social-to-medical spending.  Population health research shows that we are more likely to promote life expectancy and prevent avoidable deaths the more our governments grow social spending (for example, child care, income supports, housing, education, etc.) faster than medical spending.

While Canadian governments have been weak at aligning previous Budgets with this research, especially for younger residents, the pandemic has changed things. The risk of catching COVID-19 has been greater in disadvantaged neighbourhoods, in particular kinds of work sites, and among more marginalized groups of workers. We’ve also seen that the social distancing required to fight the spread of the virus has undermined many people’s livelihoods, housing security and access to education – which are key determinants of their health, and has caused deterioration in mental health even as we prevented many from catching COVID. 

In sum, that pandemic has reinforced something that population health research has shown for some time:  health doesn’t start with health care.  It starts where we are born, grow, live work and age.

That’s why Gen Squeeze will encourage the Government of Canada to grow social spending faster than medical spending, as part of our plan to ease the time, money, service and environmental squeeze on younger Canadians. 

The CERB and Wage Subsidy served this mission reasonably well during the exceptional circumstances required by COVID-19. Following the pandemic, it will be important for the Federal government to grow the Canada Social Transfer (and related funding) faster than the Canada Health Transfer. We will monitor carefully via our efforts to shape the new Quality of Life Framework.

 

Intergenerational fairness in government Budgets

As our final recommendation for Budget 2021, Gen Squeeze asked the Government of Canada to improve and deliver annual reporting on age trends in public finance to better assess the fairness and adequacy of new investments in those under age 45 by comparison with the growth in Old Age Security, as well as the growth in government debt.  This reporting is necessary to ensure that the Federal Budget is working for all generations.

We had to make this recommendation, because we’ve experienced a classic case of “ Be careful what you wish for.” For years, Gen Squeeze had been encouraging the Government of Canada to report on age trends in its spending.  It finally did so as of 2019, which is good news (sort of).  As we described in this blog, the age-reporting that Ottawa introduced was partial at best. As a result it distorts the intergenerational tensions that exist in the Federal Budget.

The same problem occurs in the 2021 Budget. Table A1.6 in the “fine print” of the Budget shows that the Government of Canada plans to increase spending on Old Age Security by $22 billion a year as of 2025 compared to 2020.

There is no doubt that Old Age Security helps to ensure that retirees can enjoy financially secure and healthy retirements. My parents, in-laws and other older relatives all use the OAS.

But as we acknowledge it is an important program, it also important to recognize that a $22 billion annual increase is much larger than other long-term spending increases that Ottawa plans. 

For instance, the same Table A1.6 shows that the historic investment in child care which is getting the lions share of media coverage about the 2021 Budget will only grow by $7.7 billion in annual spending by 2025.  That’s just one-third of the planned increase to OAS. 

Similarly, Budget 2021 (p. 160) announces $17.6 billion spread over the next several years towards a green recovery to create jobs, build a clean economy, and fight and protect against climate change.  Again, this is much less than the increase to OAS planned for one single year.

The same goes for housing investments. Budget 2021 (p. 194) plans $2.5 billion in new investments for affordable housing spread over several years – much, much less than the OAS increase.

So when Canadians and our politicians reflect on why our national government still plans a $31 billion deficit in 2025 (well past the recession, we hope), it will be important to acknowledge that growth in OAS spending is a primary factor, especially in the absence of exploring new ways to raise revenue to cover its growing costs.

Unfortunately, the summary chart (A4.6) about “Intergenerational” impacts for which Gen Squeeze has long asked of Federal Budgets obfuscates the numbers I report above.  Instead, this Chart reports on a relatively small slice of new government expenditures described in Budget 2021, and does so in a way that implies younger Canadians and future generations are the biggest beneficiaries of the government’s latest spending plans.

The actual numbers in the Budget paint a very different picture.  When one adds up Federal Budget projections in the year 2025 for:

  • retirement income security, employment insurance, cash benefits for families with children, child care services, the Canada Health Transfer and the Canada Social Transfer;
  • and then attributes those expenditures by age according to Statistics Canada data and academic studies (Kershaw 2020, 2018, 2016)
  • the findings reveal that the Government of Canada plans to invest approximately $2,500 more per person age 65+ compared to just $300 more per person under age 45.

Our Members of Parliament need this kind of accurate age analysis if they are going to develop budgets that truly work for all generations.  So far, Federal Budget documents fail in this regard.

We hope that the new emphasis on “sustainability” in the Government of Canada’s emerging Quality of Life Framework creates additional opportunities to get this age and generational analysis right, because that lens is supposed to examine “whether today’s prosperity undermines future living standards” (Budget 2021, p. 411).  Gen Squeeze will keep on top of this issue as part of our ongoing effort to mobilize the best available knowledge about generational fairness into federal budget decisions. 

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.
2021 Federal Budget Analysis
What's in the 2021 Federal Budget?
Check out Generation Squeeze. I just joined.
Read the blog at Generation Squeeze 2
News & Resources