Return of the Home Renovation Tax Credit?

Let the federal election promises begin! Prime Minister Stephen Harper came to Toronto yesterday and pledged that, if re-elected, he would re-boot and make permanent the renovation tax credit so popular a few year ago. Well… sort of… maybe.

Back in 2009, the Conservatives rolled out the Home Renovation Tax Credit (HRTC) as a temporary measure. Around one in every three households used the program, making it among the most popular of the party’s tax credits in the past, and one of the few that has been supported by both the Liberals and the NDP.

This time around the credit would be a 15 per cent annual credit on renovations between $1,000 and $5,000, but it comes with conditions.

First, it would depend on the economic conditions of the country, which are shaky at present. Harper predicted the tax credit would be introduced in the middle of his government’s next mandate.

Second, while the original HRTC applied to renovation costs of up to $10,000, the ceiling for the permanent credit has been lowered to $5,000.

“For most Canadians, the family home is their biggest asset and their most significant investment in their future financial security,” Harper said. “I’m therefore very pleased to announce that to help make it more affordable for Canadians to adapt their homes to their changing needs and to maintain and increase those houses’ values, we will establish a new, permanent home renovation tax credit.”

The credit, which would apply to renovation work done on houses, cottages and condominiums owned for personal use, would help create jobs in the construction sector according to Harper, and pump billions of dollars back into the Canadian economy. The Conservatives estimate the permanent program would cost around $1.5 billion a year, or roughly half what the 2009 program cost.

Markham-Thornhill Liberal candidate John McCallum expressed dissatisfaction with the proposed tax credit.

“It’s not refundable. In other words, if you don’t earn enough income to pay tax you get nothing,” he said. “We believe it is totally wrong to offer this credit for everyone except those with low income.”

In an interview with the National Post, Mike Moffatt, an economist and assistant professor at the Richard Ivey School of Business who has provided economic advice to Liberal Leader Justin Trudeau, said that while the earlier home renovation tax credit made some sense, it was a temporary measure designed to stimulate a lagging economy at a time when the construction sector needed a boost. The plan Harper proposed Tuesday, on the other hand, would be permanent, phased in only if the economy was strong, and aimed at residential real estate, “the one sector of the economy that’s going gang busters,” Moffatt said.

“It seems really strange,” he added. “Normally if this was a form of stimulus, you would wait until the economy was weak and you would target sectors of the economy that are not doing all that well. ”

According to the consultancy group Altus, Canadian spending on renovations has grown 3.6 per cent, versus overall economic growth of just 1.6 per cent. Last year, home renovations accounted for 3.4 per cent of Canada’s GDP.