One of the Conservative government’s first election campaign promises has been to restore the renovation tax credit.

The federal Conservative campaign pledge to revive the popular home renovation tax credit comes at a time when Canada’s renovation industry is already outperforming the broader economy and booming past the market for new homes, the Globe and Mail reported in its story about the election promise.

“Canadians spent $68-billion on home renovations last year compared with $48-billion spent building new homes, according to a recent report from real estate consultancy Altus Group Ltd,” the newspaper reported. “Over the past seven years, 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.

Prime Minister Stephen Harper asserted in announcing the credit, that it would be phased in starting in the 2016-17 budget year.  This is among the most popular tax credits and has been supported by both the NDP and Liberals.

The proposed new credit will be smaller than the previous one, capped at $5,000 total spending compared to $10,000 in 2009.

The current campaign promise calls for a much smaller tax credit, which would be capped at $5,000 total spending, compared with $10,000 in 2009. The Conservatives estimate the tax credit will cost $1.58-billion a year, or roughly half what its 2009 program cost.

“The program, which allowed homeowners to claim a 15-per-cent tax refund on renovations, up to $1,350, proved exceptionally popular,” the Globe and Mail reported. “Spending on renovations, which had slowed to a crawl in 2008, soared roughly 12 per cent after the tax credit came into effect. Nearly three million Canadians took advantage of the program, getting an average of $700 per claim and generating about $4.3-billion worth of economic activity, according to government estimates.”

However, when the credit ended in 2010, renovation spending dropped sharply, though the contraction was short-lived. By 2011, the Bank of Nova Scotia noticed that home renovation spending was growing faster than new home construction.

Not surprisingly, observations about the tax credit are shaped in part by partisan considerations. Some commenters to the Globe and Mail observed that renovation prices increased while the credit was in place, resulting in advantages more for renovation contractors than consumers.
Kevin Lee, chief executive officer of the Canadian Home Builders’ Association (CHBA), said the credit won’t have the dramatic economic impact of the 2009 initiative. One factor: Because it will be permanent, it won’t have the same spending-flurry impact of a temporary program.