Technical Analysis

Canada to make all student loans permanently interest free

Governments that overspent in the pandemic are finding new ways to make money. The US unveiled a 1% surtax on buybacks earlier this year and now Canada has one-upped them with a 2% levy.

The move was rumored late yesterday but the size of the tax was unknown.

It was part of a host of other announcements in the Federal government’s Fall Economic Update.

  • Refundable tax credit of up to 30% for investmetns in clean tech starting next year
  • Growth fund with C$15 billion in capitalization by year end
  • Refundable investment tax credit in hydrogen
  • To spend C$4 billion in six years to send quarterly payments to employed low earners
  • 2022-23 deficit to be $36.4B vs $52.8B forecast from April
  • 2023-24 deficit forecast at $30.6B
  • Projects balanced budget in 27-28
  • Sees debt-to-GDP falling to 37.3% in 2027-28 from 42.3% this year
  • Sees 6.8% inflation this year, 3.5% in 2023 and 2.1% in 2024 and beyond
  • Cuts 2022-23 bond issuance by C$21 billion
  • To cease issuance of real-return bonds
  • To make proposal on a new minimum tax regime
  • To make all student loans permanently interest free

The deficit numbers are better but markets had already figured that out. The Liberals are framing this as a budget that’s showing restraint but you need to squint to see it. That said, making student loans interest free is a much better idea than forgiving them.

In the US, the stock buyback tax hasn’t made any notable difference in buybacks versus capex so if the aim is to shift money towards investment, it’s an iffy policy. But now that it’s out there, expect both the US and Canada to slowly ratchet it higher.

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