Carney’s Fall Budget: Key Priorities to Request

Statistics Canada’s midsummer update showed that disposable income rose across all income groups in the first quarter of 2025. Higher earners saw the biggest gains—around 6% to 7%—while the lowest earners recorded a rise of roughly 3.2%. Those increases outpaced the 2.3% inflation rate at the time, offering a welcome boost to household finances early in the year.

Conditions shifted in the second quarter as the Canadian economy weakened, bringing renewed attention to the fragility of many households’ incomes and savings. That downturn also underscores how important the upcoming federal budget (scheduled for November 4) will be in protecting Canadians’ financial well-being during the months ahead.

The income gap reaches a new high

One widely reported measure is the income gap—the difference in disposable income share between households in the top 40% and those in the bottom 40% of the income distribution. That gap hit a record high of 49% in the first quarter, with a modest easing in Q2, and has trended upward each year since the pandemic.

Rising interest rates have been a major factor. Fortunately, household interest payments fell nearly 5% in Q1 for the first time since 2022, which helped disposable income for households carrying debt. But new U.S. tariffs introduced later in the year complicated the picture. Periods of uncertainty tend to hit lower-income households hardest, and the latest data reflects that vulnerability.

Statistics Canada also reported a decline in average wages in Q1, driven largely by reduced hours worked. Workers in sectors such as mining, manufacturing, and certain professional and personal services were particularly affected. Meanwhile, income for the lowest-income households rose at a faster-than-average pace (+5.6%) in Q2, but much of that increase came from higher government transfers—Employment Insurance (EI), other social assistance, and retirement benefits—not from stronger wages.

At the same time, tax revenues are expected to be weaker. The Parliamentary Budget Office projects a lower nominal GDP through 2029, shrinking the tax base and reducing future tax receipts—an effect attributed in part to tariff-driven economic losses. While the government may pursue higher taxes, fines, or penalties to offset the shortfall, there is a constructive alternative: policies that make it easier for Canadians to build income and accumulate wealth.

Diversification of investments matters

The midyear data highlights how different investment profiles and asset mixes shape outcomes for households. Key trends include:

1. Lower-income households rely more on interest income. In the recent period, net investment income for these households fell the most. A sharp decline in investment returns (around -35.3%) more than offset any relief from lower interest payments (-7.1%). Q2 patterns were similar.
2. Higher-income households hold more diversified portfolios with greater equity exposure. These portfolios generate tax-favorable capital gains and dividend income. In Q1, the value of financial assets for higher-income families rose by about 7.1%—nearly three times inflation—and climbed another 9.6% in Q2. Mortgage growth among these households was modest (+1.9%).
3. By the end of Q2, the top 20% of households owned nearly two-thirds (64.8%) of Canada’s total net worth, averaging roughly $3.4 million per household, while the bottom 40% held only about 3.3% of total net worth, averaging approximately $86,900.
4. Homeowners gained in some respects from lower borrowing costs and easing inflation, allowing extra savings and debt reduction in Q1. Yet younger Canadians and those without investment portfolios saw declines in personal net worth as real estate values fell in some markets.

The wealthy will be OK, others need help

The pattern is clear: wealthy households can continue to increase net worth even when wages stall or job losses occur, because investment returns and capital appreciation offset income interruptions. For many lower-income households, however, that buffer doesn’t exist.

Two practical opportunities stand out for lower-income Canadians. First, enabling consistent saving—even small amounts—helps households weather shocks and benefit from compounding over time. Second, encouraging access to tax-efficient investment vehicles and better financial planning can improve long-term outcomes.

Policy choices matter. Simply raising taxes across the board can reduce incentives to work, invest, and innovate, and may trigger capital flight. A more constructive approach in the next federal budget would be to design measures that help all Canadians build income and wealth while supporting access to professional guidance and financial education.

Building income and capital: a six-part plan

Financial and tax literacy is a cornerstone of prosperity. People who understand basic tax planning and saving strategies are better able to access refunds, credits, and social benefits and to make choices that increase lifetime wealth. Below is a targeted six-point policy wishlist intended to expand opportunity and reduce vulnerability.

1. Protect interest earnings. High interest-rate periods can erode the value of interest-based savings for lower-income households. If monetary policy requires elevated rates, protect small savers from both inflation and tax erosion. One option is reinstating a modest investment income deduction for low balances to preserve purchasing power.
2. Deduct professional advice. Many Canadians need help with tax and financial planning and cannot rely solely on digital tools. Making costs for tax preparation and basic financial planning tax-deductible would lower barriers to accessing professional guidance and encourage sound long-term habits—helping people decide when to use RRSPs, TFSAs, or newer vehicles like FHSAs.
3. Waive penalties for automated filing errors. Automatic tax filing could simplify returns for millions, but errors in auto-filed returns could create long-term repayment problems. The tax authority should be empowered to waive penalties and interest for honest mistakes that arise from official auto-filing systems.
4. Support new savers. Young workers benefit most from early saving due to compounding but are also most vulnerable to job loss. Matching grants for starter savings during the first five years after finishing post-secondary education—similar to RESP or RDSP top-ups—could form a New Graduate Savings Plan to build good habits.
5. Recognize volunteer service. Tracking volunteer hours is feasible and could be rewarded with modest tax relief. Extending existing credit ideas to recognize volunteers who provide tax or financial-help services in communities would boost civic engagement and expand access to assistance.
6. Expand retirement flexibility. The Canada Pension Plan alone won’t fully fund many retirees’ needs, and rising CPP premiums can reduce take-home pay available for private savings. Encouraging TFSA savings by allowing tax-deductible contributions for both employees and employers would increase private, tax-free retirement resources without locking in additional payroll costs.

Read more about tax planning:

• The best free personal finance and investing courses in Canada
• Canada’s income tax brackets for 2025 and what they mean for your taxes
• How the Canada GST/HST tax credit works
• How to set up CRA direct deposit