Budget 2016—Billed As ‘Growing the Middle Class’

Matt Chan • March 24, 2016

Today’s budget included everything I expected and nothing that I feared. The fears first— there is no change in the tax treatment of capital gains or stock options , despite continued rumours and speculation. Indeed, in a press conference in the lock-up, Minister Morneau said that stock options tax changes are off the table because they are so important to young innovative companies. There is also nothing in the budget designed to tighten credit conditions in the housing markets.

With respect to housing, Ottawa will support the collection of data regarding foreign purchases of Canadian residential real estate, providing additional funding to Stats Canada working with CMHC and British Columbia. Evidence-based assessment of the situation is important.1 Hopefully, governments at all levels will refrain from discouraging foreign investment in housing in a misplaced effort to create more affordable housing. The budget does express concern about affordable housing by investing $2.3 billion over two years for social infrastructure in communities where it is most needed, including $739 million for First Nations, Inuit and northern housing.

Budget 2016 states that “stable and secure housing markets protect the greatest investment of many middle class Canadian families. On December 11, 2015, the government announced coordinated actions to strengthen the resiliency of Canada’s housing finance system, increase market discipline in residential lending, and promote long-term stability and balanced economic growth. The government will continue to closely monitor vulnerabilities related to housing and consumer debt and is prepared to implement further measures, should they be needed.”

This is all good—no messing around with the housing market in this year’s budget, but reasserting a watchful eye on excesses and potential bubbles. There is a growing concern among U.S. hedge fund managers regarding the Canadian housing market and Canadian household debt as many expect a U.S.-style meltdown in Canada, similar to what happened in the U.S. in 2007-2009. This is nothing new, as Canadian pundits and media have been suggesting something similar for several years now. However, vigilance against fraud and insufficient qualifying conditions for credit is important to maintaining the financial stability of our economy and our financial institutions.

Household debt levels are at record highs relative to income and interest rates are at record lows. The Bank of Canada estimates that roughly 8% of households are severely indebted and vulnerable to rising interest rates in the future and/or a job loss owing to economic shocks. The oil price rout has already tested these conditions in Alberta and Newfoundland where credit card delinquency rates are already rising. The use of homes as piggy banks is a concern as home equity lines of credit have grown rapidly. As well, auto loans and credit card borrowing may well be too readily available for a segment of the population that is overstretched.

Budget Fundamentals

As expected, the current fiscal year budget deficit is forecast to come in at just shy of $30 billion ($29.4 billion, to be exact) and to fall only a bit next year (to $29.0 billion), nearly three times the size of deficit promised during the election campaign. As well, deficits will remain over the five-year forecast horizon. There is some cushion here in that these numbers include a $6 billion contingency reserve. But to the surprise of some, there is no estimate of when the federal budget will be balanced.

Despite these large deficits, the federal debt-to-GDP ratio–while rising in the fiscal year (FY) that begins April 1 from 31.2% to 32.5%–will fall over each of the next five years to end FY 2020-21 at 30.9%. Canada has the lowest debt-to-GDP ratio by far in the G7, so no worries here. With interest rates so low, debt servicing costs have dropped sharply.

SUMMARY OF FISCAL DEVELOPMENTS SINCE THE FEBRUARY OUTLOOK
billions of dollars

The major initiatives in this budget were pre-announced. The biggest single spending item on the Liberal docket is the new Canada Child Benefit that swallows four former benefits — including the universal child care benefit and income splitting — into a single new payment targeting middle and lower income Canadian families. The program won’t roll out until July 1, however, as the federal government continues to fine-tune details with the provinces. With a maximum $6,400 a year per child under five and $5,400 annually for kids six to 17, the new benefit is an effort to reduce income equality. The Canada Child Benefit provides a net fiscal stimulus of $3.7 billion this year and $4.3 billion next year, accumulating to just under $8.0 billion over the next five years.

The middle class tax cut was announced last December effective January 1. While it is estimated to provide a net boost to the economy of $1.3 billion this year, the hike in tax rates for incomes over $200,000–which is called “the tax fairness measure” in the budget documents—is estimated to have a net negative economic impact of $0.7 billion over the same period. The negative impact of this tax increase could be substantially greater, especially over the longer term as it dampens entrepreneurial spirit and makes it more difficult to attract and retain talent and new high-growth businesses in Canada.

In addition, budget 2016 extends EI regular benefits by 5 weeks to all eligible claimants, and provides up to an additional 20 weeks of EI regular benefits to long-tenured workers, in the following EI economic regions:

• Newfoundland/Labrador
• Sudbury
• Northern Ontario
• Northern Manitoba
• Saskatoon
• Northern Saskatchewan
• Calgary
• Northern Alberta
• Southern Alberta
• Northern British Columbia
• Whitehorse
• Nunavut

Infrastructure spending increases in the budget are also pretty much as advertised. Phase 1 of the infrastructure plan provides $11.9 billion over five years for public transit, green investments and social infrastructure.

Ottawa estimates that the GDP impact of the combined fiscal stimulus will be 0.5% for FY 2016-17 and 1.0% for the following fiscal year. I forecast that the GDP growth rate in 2016 will be roughly 1.7%, rising to about 2.0% next year.

The big loser in this budget is the energy sector. The government repeatedly states in the budget documents that it will subsidize clean energy initiatives and reduce Canada’s carbon footprint. For example, “the government will invest in electric vehicle and alternative transportation fuel infrastructure.” Ottawa has promised that Canada will be a leader in addressing the causes of climate change. We already know the Liberals are not supporting the Gateway pipeline or pipeline development in general.

The assumption for oil prices in 2016 is $40 (U.S. per barrel for West Texas Intermediate crude oil)—slightly above the current level and well above the lows posted early this year. Oil prices are expected to rise from there to $52 in 2017 and $63 in 2020, still well below the levels posted during the oil boom.

The other economic assumptions in the budget are consistent with the average of private sector forecasts, which have been revised down considerably from budget 2015 because of the larger than expected oil price decline. As well, the Canadian dollar is forecast in the budget to average 72.1 cents U.S. in 2016, well below current levels of 76 cents plus. The loonie is forecast to edge upward gradually over the next five years.

Bottom Line: While there will no doubt be quibbles about the specifics of today’s budget, the good news is that it will provide economic stimulus without threatening Canada’s solid financial position. There is no doubt we will maintain our triple-A rating. The government was urged by some to spend more and by others to spend less, so they have reached a reasonable balance without raising the tax burden further on high-income Canadians. The actions taken will help, at least at the margin, to assure a minimum standard of living for all.

FOOTNOTE:

1 Also on the data collection front, the government will re-introduce the long form census, a move that will be applauded by all economic and demographic researchers.

CONTACT

Share

RECENT POSTS

Fixed vs. Variable Mortgage Rates in Canada

By Matthew Chan • January 7, 2026
Fixed vs. Variable Rate Mortgages: Which One Fits Your Life? Whether you’re buying your first home, refinancing your current mortgage, or approaching renewal, one big decision stands in your way: fixed or variable rate? It’s a question many homeowners wrestle with—and the right answer depends on your goals, lifestyle, and risk tolerance. Let’s break down the key differences so you can move forward with confidence. Fixed Rate: Stability & Predictability A fixed-rate mortgage offers one major advantage: peace of mind . Your interest rate stays the same for the entire term—usually five years—regardless of what happens in the broader economy. Pros: Your monthly payment never changes during the term. Ideal if you value budgeting certainty. Shields you from rate increases. Cons: Fixed rates are usually higher than variable rates at the outset. Penalties for breaking your mortgage early can be steep , thanks to something called the Interest Rate Differential (IRD) —a complex and often costly formula used by lenders. In fact, IRD penalties have been known to reach up to 4.5% of your mortgage balance in some cases. That’s a lot to pay if you need to move, refinance, or restructure your mortgage before the end of your term. Variable Rate: Flexibility & Potential Savings With a variable-rate mortgage , your interest rate moves with the market—specifically, it adjusts based on changes to the lender’s prime rate. For example, if your mortgage is set at Prime minus 0.50% and prime is 6.00% , your rate would be 5.50% . If prime increases or decreases, your mortgage rate will change too. Pros: Typically starts out lower than a fixed rate. Penalties are simpler and smaller —usually just three months’ interest (often 2–2.5 mortgage payments). Historically, many Canadians have paid less overall interest with a variable mortgage. Cons: Your payment could increase if rates rise. Not ideal if rate fluctuations keep you up at night. The Penalty Factor: Why It Matters More Than You Think One of the biggest surprises for homeowners is the cost of breaking a mortgage early —something nearly 6 out of 10 Canadians do before their term ends. Fixed Rate = Unpredictable, potentially high penalty (IRD) Variable Rate = Predictable, usually lower penalty (3 months’ interest) Even if you don’t plan to break your mortgage, life happens—career changes, family needs, or new opportunities could shift your path. So, Which One is Best? There’s no one-size-fits-all answer. A fixed rate might be perfect for someone who wants stable budgeting and plans to stay put for years. A variable rate might work better for someone who’s financially flexible and open to market changes—or who may need to exit their mortgage early. Ultimately, the best mortgage is the one that fits your goals and your reality —not just what the bank recommends. Let's Find the Right Fit Choosing between fixed and variable isn’t just about numbers—it’s about understanding your needs, your future plans, and how much financial flexibility you want. Let’s sit down and walk through your options together. I’ll help you make an informed, confident choice—no guesswork required.

Home Reno Dreams? Let’s Talk Mortgage Financing

By Matthew Chan • December 31, 2025
How to Use Your Mortgage to Finance Home Renovations Home renovations can be exciting—but they can also be expensive. Whether you're upgrading your kitchen, finishing the basement, or tackling a much-needed repair, the cost of materials and labour adds up quickly. If you don’t have all the cash on hand, don’t worry. There are smart ways to use mortgage financing to fund your renovation plans without derailing your financial stability. Here are three mortgage-related strategies that can help: 1. Refinancing Your Mortgage If you're already a homeowner, one of the most straightforward ways to access funds for renovations is through a mortgage refinance. This involves breaking your current mortgage and replacing it with a new one that includes the amount you need for your renovations. Key benefits: You can access up to 80% of your home’s appraised value , assuming you qualify. It may be possible to lower your interest rate or reduce your monthly payments. Timing tip: If your mortgage is up for renewal soon, refinancing at that time can help you avoid prepayment penalties. Even mid-term refinancing could make financial sense, depending on your existing rate and your renovation goals. 2. Home Equity Line of Credit (HELOC) If you have significant equity in your home, a Home Equity Line of Credit (HELOC) can offer flexible funding for renovations. A HELOC is a revolving credit line secured against your home, typically at a lower interest rate than unsecured borrowing. Why consider a HELOC? You only pay interest on the amount you use. You can access funds as needed, which is ideal for staged or ongoing renovations. You maintain the terms of your existing mortgage if you don’t want to refinance. Unlike a traditional loan, a HELOC allows you to borrow, repay, and borrow again—similar to how a credit card works, but with much lower rates. 3. Purchase Plus Improvements Mortgage If you're in the market for a new home and find a property that needs some work, a "Purchase Plus Improvements" mortgage could be a great option. This allows you to include renovation costs in your initial mortgage. How it works: The renovation funds are advanced based on a quote and are held in trust until the work is complete. The renovations must add value to the property and meet lender requirements. This type of mortgage lets you start with a home that might be more affordable upfront and customize it to your taste—all while building equity from day one. Final Thoughts Your home is likely your biggest investment, and upgrading it wisely can enhance both your comfort and its value. Mortgage financing can be a powerful tool to fund renovations without tapping into high-interest debt. The right solution depends on your unique financial situation, goals, and timing. Let’s chat about your options, run the numbers, and create a plan that works for you. 📞 Ready to renovate? Connect anytime to get started!

First-Time Buyer? Here’s How to Tell If You’re Ready

By Matthew Chan • December 24, 2025
Ready to Buy Your First Home? Here’s How to Know for Sure Buying your first home is exciting—but it’s also a major financial decision. So how can you tell if you’re truly ready to take that leap into homeownership? Whether you’re confident or still unsure, these four signs are solid indicators that you’re on the right path: 1. You’ve Got Your Down Payment and Closing Costs in Place To purchase a home in Canada, you’ll need at least 5% of the purchase price as a down payment. In addition, plan for around 1.5% to 2% of the home’s value to cover closing costs like legal fees, insurance, and adjustments. If you’ve managed to save this on your own, that’s a great sign of financial discipline. If you're receiving help from a family member through a gifted down payment , that works too—as long as the paperwork is in order. Either way, having these funds ready shows you’re prepared for the upfront costs of homeownership. 2. Your Credit Profile Tells a Good Story Lenders want to know how you manage debt. Before they approve you for a mortgage, they’ll review your credit history. What they typically like to see: At least two active credit accounts (trade lines) , like a credit card or loan Each with a minimum limit of $2,000 Open and active for at least 2 years Even if your credit isn’t perfect, don’t panic. There may still be options, such as using a co-signer or working on a credit improvement plan with a mortgage expert. 3. Your Income Can Support Homeownership—Comfortably A steady income is essential, but not all income is treated equally. If you’re full-time and past probation , you’re in a strong position. If you’re self-employed, on contract, or rely on variable income like tips or commissions, you’ll generally need a two-year history to qualify. A general rule: housing costs (mortgage, taxes, utilities) should stay under 35% of your gross monthly income . That leaves plenty of room for other living expenses, savings, and—yes—some fun too. 4. You’ve Talked to a Mortgage Professional Let’s be real—there’s a lot of info out there about buying a home. Google searches and TikToks can only take you so far. If you're serious about buying, speaking with a mortgage professional is the most effective next step. Why? Because you'll: Get pre-approved (and know what price range you're working with) Understand your loan options and the qualification process Build a game plan that suits your timeline and financial goals The Bottom Line: Being “ready” to buy a home isn’t just about how much you want it—it’s about being financially prepared, credit-ready, and backed by expert advice. If you’re thinking about homeownership, let’s chat. I’d love to help you understand your options, crunch the numbers, and build a plan that gets you confidently across the finish line—keys in hand.