Less than a year out from the 2019 general election, Finance Minister Bill Morneau today delivered his final Fall Economic Statement (FES) of the mandate. The minister reiterated the steps already taken by the government to support the middle class but had little new initiatives to offer, except for seniors.

Since President Trump’s corporate tax cuts took effect this January, national business organizations and industry leaders have been calling on the government to slash the corporate tax rate to promote a strong investment climate and ensure continued Canadian competitiveness vis-à-vis the United States.

Instead of cutting the corporate tax rate, Minister Morneau responded with targeted tax measures for capital assets and more funding to spur private investment. This is disappointing to the oil and resource sector, particularly in western Canada, as many had expected more support to Canada’s struggling oil and gas sector.

Citing the strongest economic growth in all G7 countries, Minister Morneau also boasted the lowest unemployment rate in 40 years and wage growth that outpaces inflation.  However, the economic update also includes a projected higher federal budget deficit in 2019-2020 ($19.6-billion) than 2018-2019 ($18.1-billion). This new projection does not foresee a dip until 2021-2022 ($15.1-billion), with a gradual decline continuing until 2023-2024 ($11.4-billion).  Not included in the update is a path back to balance.

Tax Competitiveness

While falling well short of a cut to the corporate tax rate, the FES did introduce a series of targeted measures to write off capital costs of machinery and equipment used for the manufacture or processing of goods. This also includes an immediate full cost write off for clean energy equipment, and a new Accelerated Investment Incentive to allow business to write off a greater share of costs spent acquiring new assets. Immediate expensing will apply to qualifying assets acquired after November 20, 2018, but will be gradually phased out starting in 2024, and no longer in effect for investments put in use after 2027.

Trade Diversification

Foreshadowed by the appointment of the Minister of International Trade Diversification this summer, the government is committing to a 6-year, $1.1 billion Export Diversification Strategy to increase Canada’s overseas exports by 50 per cent by 2025. Pillars of the Export Diversification Strategy are on theme with the government’s ongoing priorities:

  • Accelerating $773.9 million in infrastructure spending along trade and transportation corridors and expediting projects through a continuous call for proposals under the National Trade Corridor Fund (NTCF);
  • Investing $198 million to help Canadian businesses build export development plans, partnerships and skills; and
  • Enhancing trade services for Canadian agriculture and emerging sector exporters as well as technology and life sciences firms.

The FES also identifies four areas in which the federal government will work with its provincial and territorial partners to address barriers to internal trade: (1) transportation of goods between jurisdictions; (2) food regulation and inspection rules; (3) building code harmonization; and (4) facilitating trade in alcohol between provinces and territories.

Strategic Innovation Fund

The Strategic Innovation Fund (SIF) will receive an additional $800 million over five years, $100 million of which will provide support to the forest sector. The SIF, which sits with Innovation, Science and Economic Development, has been used as a catch-all for a multitude of government programs. The fund has received significant applications and government officials were telling stakeholders in recent months that the fund had become oversubscribed. The new investments proposed in today’s statement will ensure the fund can continue to fulfill its mandate.

Social Finance Fund

The government will invest $755 million on a cash basis over the next 10 to develop a Social Finance Fund. Charitable, non-profit and social purpose organizations will be eligible to apply for funding through this fund to support projects that will generate positive social change. Further details on the Social Finance Fund will be released in early 2019.

Support for Canadian Journalism

The government announced that it will be launching three new initiatives to support independent news media. The government is proposing to allow non-profit news organizations to receive charitable donations and issue official donation receipts; introduce a refundable tax credit to support original news content, including local news; and introduce a temporary, non-refundable tax credit to support subscriptions to Canadian digital news media.

Improving Regulatory Certainty

Via the creation of an External Advisory Committee on Regulatory Competitiveness and a Centre for Regulatory Innovation, the federal government intends to improve and modernize regulatory policy to foster stronger economic growth and job creation. The government will also put forward an Annual Modernization Bill, beginning in 2019, to keep regulations up-to-date and relevant. In response to industry concerns raised through the regulatory modernization consultation that flowed from Budget 2018 commitments, the government has signaled that the Canadian Food Inspection Agency (CFIA), air carriers, clinical trial investigators, brewers, and innovators in health, transportation and biotechnology, can all expect to see improvements in the short-term.

Reaction

Responses form stakeholders has been decidedly mixed. The government is facing criticism for a lack of action to support Alberta and the energy sector, but other measures have been lauded by the business community.

The Canadian Chamber of Commerce expressed disappointment that more has not been done to address budget deficits or support the oil and gas industry, but voiced support for the government’s steps to clean up red tape and improve the regulatory climate. The Business Council of Canada indicated the government has taken positive steps that will allow governments to continue investing in Canada, while cautioning that competitiveness issues run deeper.

Conservative Finance Critic Pierre Poilievre criticized the government’s rising deficit, reminding the Liberals of their election commitment to balance the budget by 2019. NDP Finance Critic Peter Julian criticized a lack of investment in housing and charged that the government is failing to address family debt. The NDP also noted the lack of further details on a national pharmacare program.

What It All Means

Harkening back to the Liberals’ 2015 campaign platform, Minister Morneau spent much of the address highlighting what steps the government has already taken to support middle class Canadians. New social investments were directed toward senior citizens, a demographic the youth-centric government has been accused of overlooking in the past. Much of the rest of the speech focused on reassuring business leaders.

The government will likely seek to enact measures in today’s FES through a blend of motions and legislation introduced in the weeks to come. Ministers will also fan out across the country to sell the government’s approach to the business community – a pitch that will be difficult in some regions.

While the FES comes in at the size of a miniature budget – over double the length of that of 2017 – much of the spending proposed in the document is a reprofiling of existing funds and a transfer of spending forward. For example, at least $773.9 million of the $1.1 billion Export Diversification Strategy is money already scheduled for later years that has been advanced.

After a lot of anticipation, today’s Fall Economic Statement fell short for many. With a lukewarm reaction from the business community who were looking for more help, there is also little in this document to appeal to everyday Canadians. Given there are only eleven months until the next election, many expected much more out of today’s update. This leaves stakeholders to look now toward Budget 2019 as the final opportunity for the government to fund priority programs and initiatives that directly speak to Canadians as the campaign begins in earnest.

For more information: 

Jackie Choquette 
Vice President + Group Leader, Public Affairs
Jackie.Choquette@hkstrategies.ca
613-786-9961

Elizabeth Roscoe
Senior Vice President + National Lead, Public Affairs
Elizabeth.Roscoe@hkstrategies.ca
613-786-9938

50 O’Connor Street, Suite 1115
Ottawa, ON K1P 6L2

www.hkstrategies.ca

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