Bribing people with their own money: the home reno tax credit

The first major election promise from the federal Conservatives: a permanent home renovation tax credit. On the surface this looks like an astute manoeuvre, given that home renovation has been booming in recent years. Canadian Press called the proposed credit a “big budget campaign promise,” but on closer inspection it is pretty underwhelming.

Estimated at $1.5 billion per year, Canadians won’t see this new credit for some time. In part that is because of the weak Canadian economy and correspondingly weaker federal budget position, stubbornly headed for deficit this year in spite of bold claims made by the feds at budget time. This election promise is not likely to happen until at least 2017, if not later.

The inspiration for the proposed credit is the 2009 “stimulus” budget, which brought in a temporary credit, although with a higher ceiling of $10,000 worth of work. At least in 2009 the intention was to stimulate new work (although there were likely many free riders, those who would have done the work anyway). For a new credit the effect will be the opposite: households will delay home renos in 2016 so they can claim the credit in 2017 (or whenever).

It is also notable that a home renovation tax credit benefits already affluent home owners, those who least need a tax break. More than 30% of Canadian households are renters, so this tax break means nothing to them. Another portion of homeowners, including those with hefty mortgages, are not likely candidates either.

But even for those who are homeowners, the credit is capped at $5,000 worth of work, meaning a maximum tax savings of $750. For those contemplating any serious renovation, this credit will be only of modest help – unless you spread your reno across multiple years.

When you look closely, it is puzzling why this should be a priority at all for our federal government. It is similar to the crass tax credit politics we see with children’s sports and arts programs. Where exactly is the pent-up demand for home renovations that cannot go ahead without that extra $750?

If stimulating the housing sector is the objective, how about committing federal funds for construction of new affordable housing. $1.5 billion per year would be a great first step at a time when housing affordability is a top issue for families.