In the short term, the federal budget will have little effect on the Canadian markets or our portfolios. However, over the long-term, it will make Canada less attractive to foreign companies and less investable as our productivity continues to drop and our overall taxes continue to rise.

 

Unfortunately, Canada is becoming a less desirable place for foreign money to invest in. One of the big issues is our productivity. Per capita GDP (US$) has not gone up for 10 years now, and if we adjusted for inflation, it would have dropped significantly. It is hard to imagine real wages going up and quality of life going up while GDP per person goes down. The chart below gives you a visual of what's been happening. As a country we need to produce more resources, manufacture more goods and attract more foreign investment.

 

Canadian GDP per capita (in US dollars), not adjusted for inflation

 

Considering there are no big items in this budget, it's amazing that we can still be running a $40 billion deficit. One of the few government assistances in this budget is the grocery rebate. A family of four has the potential to receive $468 in at one time "grocery rebate". On the surface this might seem like a good idea, however, let's calculate what a $40 billion deficit will cost that same family. If we assume a 5% interest on the $40 billion of new debt that is being created by the Government of Canada, that works out to be $2 billion per year in interest payments. If we assume Canada has 40 million people, that works out to be $50 per person. So that family of four will receive a onetime "grocery rebate" of $468 this year, however, that same family will have to effectively pay via taxes, $200 in interest payments per year for the rest of their lives. And that is just paying the interest, not paying down any of the new debt. That doesn’t seem like a good return on investment.

 

There was one item in the budget that may be of interest to clients who have young adult kids who are looking to buy their first home. They created the "First Home Savings Account". This is potentially a very good opportunity for young people to build a down payment for their first home. More details are in the attached document.

"Federal Budget 2023".

 

I have also included a piece from our CIBC economics team entitled "The climate of uncertainty".

 

As always, if you have any questions, please feel free to give us a call anytime.

 

Have a great weekend.

 

Milan

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