PBO estimates tax rebate on new homes would save typical first-time buyer $27K

National Observer

a day ago

An eligible first-time homebuyer could save an average of $26,832 in sales tax on the price of a newly built home under Ottawa's latest housing proposal, the parliamentary budget officer said in a new report on Wednesday.
But the PBO's estimate of the plan's total cost is substantially lower than the federal government's estimate, and ministers responsible for the file have not offered an explanation for the gap.
In a new analysis released Wednesday, the federal fiscal watchdog predicts that 71,711 new builds would qualify for GST relief over the lifetime of the program.
The proposal would see the federal portion of the sales tax eliminated on a new home worth up to $1 million if it's bought by a qualifying first-time homebuyer.
The GST rebate would be phased down as the price of the home approaches $1.5 million.
Homes bought from May 27 through to 2031 can qualify for the rebate, as long as construction starts before 2031 and finishes by 2036.
With some exceptions, Canadians who have owned a home already are not eligible for the GST relief. Neither are investors.
The PBO forecasts the program will cost $1.9 billion over six years, about $100 million lower than the estimate it presented during the spring federal election campaign. It attributes that gap to a later implementation date and a different definition used for first-time homebuyers.
The federal government, meanwhile, estimated the "tax savings" for Canadians at $3.9 billion over five years when the legislation was tabled on May 27. The Liberals' spring election platform costed the GST rebate at around $1.6 billion over four years.
A PBO spokesperson said in an email that any difference in figures is likely due to assumptions about the share of homes ultimately bought by first-time buyers, but deferred to Finance Canada for questions about the government's figures.
Finance Minister François-Philippe Champagne did not stop for questions about the cost discrepancy on his way out of the Liberal caucus meeting Wednesday. His office did not respond to a request for clarification.
Housing Minister Gregor Robertson also did not comment about the PBO report when asked Wednesday. He told reporters he would answer questions "tomorrow."
A Desjardins Economics analysis of the proposal released Monday offered one explanation for the discrepancy between the PBO's cost estimate and the government's figure: Ottawa might think its program will be more popular than the PBO does.
A higher cost estimate suggests more first-time homebuyers purchasing qualifying new builds, in other words.
The GST rebate, which is not yet law, was included in the Liberals' spring election platform as a way to help Canadians break into the housing market.
A home priced at $1 million would receive the maximum rebate of $50,000. Homes priced below that amount would still get the full rebate — but since the sales tax is a taken off a lower overall cost, the size of the rebate would be reduced accordingly.
The rebate also would be lower than $50,000 for homes sold above $1 million because the rebate gradually ramps down until it zeros out at a purchase price of $1.5 million.
The Desjardins report by economist Kari Norman said that if the program proves popular with first-time buyers, it could spur additional housing construction to meet higher demand.
The PBO said it does not include possible behavioural responses to the program in its analysis.
Norman noted in her report that it's also possible increased demand from homebuyers will push up home prices in the near-term.
She estimated that 85 per cent of new homes built in Canada over the program time frame will be eligible for the full GST break of up to $50,000.
In cases where the GST portion of a new home sale is rolled into the mortgage principal, the typical owner could expect to save $240 per month on mortgage payments, she said. The savings are more direct when a developer charges the GST upfront.
The measure is packaged in legislation that also includes the Liberals' promised income tax cut, which is set to take effect July 1.