Finance Minister Bill Morneau is set to table the 2019 federal budget on March 19.
It will be the Liberals’ last spending blueprint before the October federal elections, one that’s likely to contain a number of “goodies” for taxpayers, as consultancy PricewaterhouseCoopers recently put it.
So what can Canadians expect?
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Longer mortgages and a more generous Home Buyers Plan
The issue of housing affordability for millennials has been on Morneau’s mind. The government’s mortgage stress test, which aims at making sure that homebuyers will be able to afford their mortgage even if interest rates rise, has made it harder for many young Canadians to gain a foothold in the property market.
The tougher federal rules came as the Bank of Canada started raising its trendsetting interest rate, which has increased borrowing costs across the economy, and on top of provincial housing market-cooling initiatives. This has helped slowed-down home-sale activity in most of the country, as home sellers try to hang on to high property prices that fewer home buyers can now afford.
Lower volumes of home sales are hurting the real estate industry. Meanwhile, in much of the country prices have dipped or remained stagnant, failing to deliver a significant gain for homebuyers.
One of the solutions industry groups have proposed is re-introducing 30-year insured mortgages for first-time homebuyers. Canadians with a down payment of less than 20 per cent of the home purchase prices must get mortgage insurance, which is offered by the Canada Mortgage and Housing Corp. (CMHC) as well as two private insurers.
While homebuyers who can pay 20 per cent or more of the home value up front can already opt for a 30-year amortization, the current maximum length for those with smaller down payments is 25 years.
Lengthening the amortization period would allow for smaller monthly mortgage payments and help more homebuyers meet the mortgage stress test requirements. On the other hand, the measure put upward pressure on real estate prices, as more buyers flock back into the market.
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Another step the government might take to help millennials buy their first home is enhancing the Home Buyers’ Plan (HBP), said Paul Shelestowsky, senior wealth advisor at Meridian Credit Union.
Currently, the HPB allows first-time homebuyers to take $25,000 out of their registered retirement savings plan (RRSP) and use it to buy a house. Canadians can withdraw the money without tax consequences as long as they repay the money within 15 years.
The HBP program is currently a “make or break” factor for many young mortgage applicants, Shelestowsky said. Being able to access $25,000 — or $50,000 for a couple — can determine whether someone passes the mortgage stress test or not.
Still, the $25,000 cap has not increased since 2009, according to the Canadian Real Estate Association (CREA). And the sum isn’t much for millennials living in Canada’s priciest housing markets, Shelestowsky added.
CREA has proposed increasing the HBP limit by $10,000, while Ontario Real Estate Association has asked that the withdrawal ceiling be pegged to inflation.
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Tax and benefit changes for seniors
Issues faced by seniors are another area of focus Morneau has mentioned.
One idea that seems to have gained some momentum involves allowing for more flexibility on withdrawals from registered retirement income funds (RRIFs). Currently, Canadians must turn their RRSPs into RRIFs or annuities by the year they turn 71. Once the conversion is made, account holders must make yearly minimum withdrawals from the account.
The problem is that people are living and working longer, meaning that there’s an increasing number of 71-year olds that would rather leave their retirement accounts untouched, Shelestowsky said.
Pre-budget proposals submitted to the government include raising the age threshold for minimum withdrawals.
Another set of possible changes involves the Guaranteed Income Supplement (GIS), which provides a monthly non-taxable amount to low-income seniors alongside the Old Age Security benefit (OAS).
The income levels at which the government currently starts clawing back the GIS is quite low. For example, the annual income at which a single senior stops qualifying for the GIS as of March 2019 is just $18,240.
The government may decide to raise that income threshold, said Dino Infanti, a tax expert at consultancy KPMG.
Pharmacare is another buzz-worthy budget theme. Morneau has said the budget will address the cost of prescription drugs, but it’s unclear how ambitious the new measures might be.
A recent interim government report on pharmacare made only general recommendations about creating a federal drug agency and a national list of medications available to all Canadians. A more detailed reported isn’t expected until later in the spring, after the budget has been tabled.
It’s unclear whether the government will opt for a single-payer national pharmacare model or adopt one aimed at filling the gaps in the current system of private and public drug plans.
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Another recurrent budget motif has been job training. Canadian businesses have been long complaining that they can’t find enough people with the right skills to fill available vacancies. The shortage appears especially dire in the tech sector and industries that rely on the skilled trades.
A group representing Canadian tech CEOs predicts the country will have 220,000 unfilled tech jobs by 2021. Similarly, the Canadian Manufacturers and Exporters has said 70 per cent of its members say they are experiencing labour shortages, with three-quarters saying that the problem will likely only get worse in the next five years.
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In an effort to help Canadians acquire in-demand skills, the government might expand tax credits that let taxpayers write off part of the cost associated with schooling and training programs, Infanti said.
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Addressing the labour shortage issue will likely also require Ottawa to ramp up its spending on things like apprenticeship subsidies and training programs, he added. It’s unclear to what degree Ottawa will loosen the purse strings, given that voters will also be focusing on federal deficit and debt spending, he added.
The government’s fall fiscal update predicted a deficit of $18.1 billion for fiscal 2018-2019. That would rise to $19.6 billion for 2019-20, before gradually declining in subsequent years. Although the size of Canada’s debt compared to its economy remains around 30 per cent — smaller than many countries, including the U.S. — the government’s fiscal projections are a significant departure from the Liberals’ election promise to balance the budget by 2019 and keep deficits to a total of $20 billion over four years in power.