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Canada budget offers plenty of perks ahead of federal election

Kitco News

Julie Gordon

OTTAWA (Reuters) - Canada’s Liberal government presented a budget on Tuesday that focused on improving access to housing and lavished the middle class with a slew of spending measures to woo voters ahead of an upcoming federal election.

The final budget by Prime Minister Justin Trudeau’s government before the October election was aimed at boosting consumer spending at a time when the economy is slowing amid global uncertainties, while shifting the narrative away from a political crisis that has dented the Liberals’ popularity.

“There’s a growing sense of uncertainty taking root around the world ... and Canada is not immune to those worries,” Finance Minister Bill Morneau said in a prepared budget speech.

“We’re going to invest in the middle class and in the things that matter most to Canadians; good jobs, strong communities, a clean environment, and better opportunities for future generations,” he added.

The budget outlined C$21 billion ($15.8 billion) in spending over five years on a number of new measures, including help to get first-time buyers into housing, a new skills training benefit, new perks for retirees and students, and the creation of a federal agency to cut the cost of prescription medications.

“The challenge I think with this budget is that there are so many boxes they tried to tick - everybody will get a little bit, but nobody will get enough,” said Craig Wright, chief economist at Royal Bank of Canada.

One of the highlights of the budget involved measures to help millennials and other first-time buyers - who have struggled to buy homes amid rising interest rates and stricter mortgage rules - boost their purchasing power without taking on too much debt.

The government is creating a program allowing first-time buyers to finance a portion of their home purchases through a shared equity mortgage with the Canadian Mortgage and Housing Corporation (CMHC).

Under the plan, the government housing agency would provide 10 percent equity on a new home or 5 percent on a resale home. The housing agency would share in any upside benefit or downside risk and the government said the move would incentivize the construction of new housing supply.

The move, along with other housing incentives, could give Canada’s housing market a much-needed shot in the arm, reviving construction and bolstering homeowner sentiment, although economists warned the overall impact may be marginal.

With all the new spending, the projected deficit in 2019-20 inched up to C$19.8 billion from C$19.6 billion forecast in November. The 2018-19 deficit is now projected at C$14.9 billion, down from C$18.1 billion forecast in November.

The budget blueprint, which is expected to be implemented given the Liberals’ parliamentary majority, also maintained a C$3 billion a year fiscal cushion, a rainy-day reserve to guard against unexpected events that could weight on the government books.

Still, some economists were concerned that the growth numbers used in the budget were too rosy and could put at risk efforts to steadily reduce Canada’s net debt-to-GDP ratio.

Reporting by Julie Gordon; Additional reporting by David Ljunggren and Fergal Smith in Ottawa; Editing by Denny Thomas and Peter Cooney

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