Overview

Earlier today, Finance Minister Bill Morneau tabled his third budget, called Equality + Growth: A Strong Middle Class. With its theme of promoting equality of opportunity, especially for women, low-income workers and Indigenous Canadians, the government is doubling down on its belief that an outreach to progressive voters will deliver the Liberals another victory in the 2019 election.
The budget reports that the Canadian economy is thriving, with over 500,000 jobs created in the last two years and the unemployment rate hovering at a 40-year low. Canada has the fastest growth rate in the G7 and the lowest debt-to-GDP ratio – on track to reach 28.4% by 2022-2023, the lowest it has been since 1979.
Budget 2018 includes a special focus on gender equality and tackling systemic barriers in the Canadian economy, claiming all workers will thrive when everyone can participate fully. The budget has put every dollar spent through a gender lens, recognizing that budgets impact women differently than they do men, created a new Employment Insurance Parental Sharing Benefit (to better balance child care responsibilities) and promised to introduce a proactive pay equity regime for workers in federally-regulated industries.
The budget also reforms the Working Income Tax Benefit into the new Canada Workers Benefit, which will now automatically apply to all qualified low-income workers when they file their taxes.
Budget 2018 also invests $4 billion over five years in science and innovation, which it says is the largest investment in scientific research of any federal budget ever, including $1.2 billion over five years to the granting councils for fundamental research.
Reconciliation with Indigenous Canadians continues to be a key theme of the new budget, with $4 billion added to build on past initiatives to provide housing and to end boil-water advisories in Indigenous communities.
Budget 2018 also builds on past climate change and environmental initiatives by adding $1.3 billion over five years for ecosystem and wildlife conservation.
Finally, the new budget opens the door to creating a national pharmacare program in Canada by creating an Advisory Council on the Implementation of National Pharmacare, to be chaired by former Ontario Minister of Health Eric Hoskins.
Taken together, the initiatives in Budget 2018 demonstrate the Trudeau government will continue to attempt to contrast itself from its Conservative opponents by championing an activist agenda to drive equality of opportunity. Liberals are gambling that this equality agenda will not only fuel economic growth, particularly for Canada’s middle class, but will also earn them the support of a broad swath of progressive voters come the next election.

What This Means

With targeted investments aimed at appealing to progressive Canadians, this budget is more about values than anything else as the Trudeau government begins to set the stage for the campaign in 2019.
Gender equity, national pharmacare and environmental conservation are widely popular among progressive voters and consistent with what many Canadians had been expecting in this budget. Hill+Knowlton’s pre-budget research identified health care and the environment as among the top priorities for Canadians to see investments in the budget, particularly among Liberal and NDP voters.
Traditional priorities for Conservative voters, such as tax reform and deficit reduction, were not a priority for progressive voters, or for Finance Minister Bill Morneau.
Perhaps the most important message from today’s budget is the government’s signal that values matter and will be reflected in all the work done by this government. Expect these values to become increasingly important and prominent over the next twelve months as the government begins actively shopping for platform ideas and commitments for 2019. Stakeholders have an opportunity to play a key role in the development of the platform, but will need to be aligned with the government on their central values, such as gender equity or fairness.
However, the campaign is still more than 18 months away and there is a lot of governing that will happen before then. In that time, expect the government to kick its plans into high gear and become more focused on outcomes and announcements. Programs that were announced in previous years, like the Canadian Infrastructure Bank or innovation superclusters will need to be running successfully before the next campaign and the government will be anxious to make movements on dozens of other files. Stakeholders that have been working with government on these types of initiatives should stay the course and accelerate their efforts in the coming months.
Above all, stakeholders who are disappointed in today’s budget should not be discouraged, as it was not intended to be all things to all people. The Trudeau government clearly held back items to give itself room to manoeuvre later this year, either in response to changing U.S. economic conditions or other external factors. And of course, the best will be saved for 2019, so the real clock for change still has twelve months to go.

Agriculture and Food

The budget commits $76 million over five years to the Canadian Food Inspection Agency with most of the money allocated at the front end: $22 million in each of 2018-19 and 2019-20. The funds will go toward strengthening the national food-safety system (improving risk intelligence and oversight, offshore prevention activities, and improving compliance of international and domestic businesses to food-safety regulations) and securing market access for agriculture and agri-food products, which involves funding to support the negotiation of export conditions for agricultural, fishery and forestry products and certification of Canadian exports against import requirements for other countries.
In addition, the budget proposes $11.5 million over three years, beginning in 2018-19, to create a regulatory reform agenda to support innovation and business investment and make the regulatory system “more agile, transparent and responsive.” This will include targeted reviews, over the next three years, of regulatory requirements and practices that create bottlenecks to innovation and growth in Canada, with an initial focus on agri-food and agriculture, health and biosciences, and transportation and infrastructure, including such emerging technologies as automated vehicles.
There is also funding to support women entrepreneurs in agriculture, which includes launching a new lending product in 2018–19 designed specifically for women entrepreneurs through Farm Credit Canada. Industry is not surprised by the minimal mention of agriculture in the budget as the provinces and territories have just finished negotiating the Canadian Agriculture Partnership (the next five-year deal after the former Growing Forward Two) with the federal government, coming into force on April 1, 2018. This is a five-year, cost-shared $3-billion investment to strengthen the agriculture and agri-food sector.

Defence and Procurement

As expected, Budget 2018 provided little on defence spending, as more detailed defence plans were revealed in June 2017 with the release of the government’s new Defence Policy: Strong, Secure, Engaged. Following its publication, the focus has been on whether the increased funding is real and viable in the long term.
At the time of the policy’s release, Defence Minister Harjit Sajjan announced plans to enhance and modernize the armed forces by adding billions of dollars in new spending with more substantial budget increases coming at a later period. Strong, Secure, Engaged increases Canada’s defence budget over the next decade from $18.9 billion to $32.7 billion by 2026-27. This increase represents a boost in the annual military budget of more than 70%. The added funding will bring defence spending to 1.4% of GDP, which remains short of the 2% NATO commitment. The plan puts off much of the spending until after the next election in 2019, with only $6.6 billion included over the next five years. In total, the policy includes $62.3 billion in additional spending over the next 20 years.
Budget 2018, however, remains significant as it commits to National Defence’s new policy, serving as a first step toward investment in much-needed areas. One of these critical areas is cyber defence, to which Budget 2018 allocates a total of $750 million to various government departments and agencies to address several cybersecurity issues. Most notably, a major portion of funding ($507.7 million over five years and $108.8 million per year thereafter) will be dedicated to a new National Cyber Security Strategy, which was first introduced almost 10 years ago by Stephen Harper’s Conservative government.
The only new money announced is $2 million over five years to prevent and address gender-based violence, harassment and discrimination by providing support to sexual-assault centres near Canadian Armed Forces bases.

Economy, Trade and Financial Services

Currently at $651.5 billion, the federal debt is projected to increase to $730.1 billion by 2022-23. But its share of the GDP will drop from 30.4 per cent in 2017-18 to 28.4 per cent five years from now. The deficit is also slightly decreasing from $19.4 billion in 2017-18 to $12.3 billion in 2022-23 – and its percentage of the GDP will also drop from -0.9 per cent in the current fiscal year to -0.5 percent five years from now.
To broaden Canada’s trading footprint, the federal budget proposes up to $75 million over five years, starting in 2018-19, with an annual allocation of $11.8 million, to Global Affairs Canada to create a stronger Canadian diplomatic and trade support presence in China and Asia. This will involve increasing the number of Canadian diplomats and trade commissioners in China as well as new, as yet unidentified, initiatives to promote Canadian trade with China and other Asian countries, which presumably includes India.
The federal government is also allocating $191 million over five years, starting in 2018-19, to Global Affairs Canada and Natural Resources Canada to support softwood lumber jobs, including through litigation under the dispute-settlement mechanisms of the World Trade Organization and NAFTA. Budget 2018 also gives $6.8 million over six years, starting in 2017-18, to the new Canadian Ombudsman for Responsible Enterprise whose mandate will be to ensure that Canadian firms operating abroad “exercise leadership in ethical, social and environmental practices.”
Budget 2018 proposes to amend the Canada Deposit Insurance Corporation Act to “modernize” the scope of deposit insurance coverage to better reflect products currently offered in the market, address the complexity of trust deposits, help protect depositors and improve understanding of insurance coverage, and “ultimately better support financial stability.” The government also plans to introduce legislative amendments to implement a resolution framework for Canada’s financial market infrastructures currently regulated under the Payment Clearing and Settlement Act.
For consumers, the government is commencing consultations to create an “oversight framework” to ensure the reliability and safety of retail payment services for purchasing goods and services, or transferring money.
For the financial sector, Budget 2018 plans to provide banks with greater flexibility to undertake and leverage financial technology to deliver financial services in “new and innovative ways.” This would occur through other legislative amendments, which would also allow life and health insurance companies to make long-term and predictable investments in infrastructure, and provide prudentially regulated deposit-taking institutions, such as credit unions, with flexibility to use generic bank terms, subject to disclosure.
Following the government’s previously announced cut to the small business tax rate, Budget 2018 provides a framework for how the government would tax passive investment income, setting a threshold of $50,000. The federal government will also introduce limitations to ensure the lower small business tax rate is used exclusively by small businesses, while preserving incentives that attract venture capital investment.

Environment and Natural Resources

Budget 2018 has earmarked $1.3 billion over five years to support Canada’s biodiversity and protect species at risk, which the government notes is one of the “most significant investments in nature conservation in Canadian history.” The federal government will invest $500 million to create a new $1-billion Nature Fund and expects matching funds from the provinces and territories and from corporations and not-for-profit organizations to secure private land, support provincial and territorial species-protection efforts, and help build Indigenous capacity to conserve land and species. The remaining $800 million will go toward:
▪ Increasing the federal capacity to protect species at risk and put in place new recovery initiatives for priority species, areas and threats to Canada’s environment;
▪ Expanding national wildlife areas and migratory-bird sanctuaries;
▪ Increasing the federal capacity to manage protected areas, including national parks;
▪ Continuing implementation of the Species at Risk Act by supporting assessment, listing, and recovery- and action-planning activities; and
▪ Establishing a coordinated network of conservation areas in collaboration with provincial, territorial and Indigenous partners.
The government is also investing money to protect marine life. Budget 2018 plans to set aside $167.4 million over five years, beginning in 2018-19, for Fisheries and Oceans Canada, Transport Canada, and Environment and Climate Change Canada (ECC), to better protect, preserve and recover endangered whale species through research and “actions” taken now “to help address threats arising from human activities.”
The government further detailed that the $1 billion dedicated to build the capacity of the proposed impact assessment system and the new Canadian Energy Regulator will help increase scientific capacity in federal departments and agencies; implement the changes required to protect water, fish and navigation; and increase Indigenous and public participation.
To support the development and implementation of the federal carbon-pollution pricing system, the government will provide $109 million over five years, beginning in the current fiscal year, to the Canada Revenue Agency and ECC to implement, administer and enforce the regime. Budget 2018 also proposes to set aside $20 million over five years, starting in 2018-19, for ECC to engage external experts to assess the effectiveness of the measures identified in the Pan-Canadian Framework on Clean Growth and Climate Change, as well as to identify best practices.
On climate change as it relates to weather and water, the government plans to complete the modernization of Canada’s weather forecast and severe weather warning systems, and maintain direct support to the emergency management organizations that prepare for and respond to severe weather through a contribution of $40.6 million over five years, starting in 2018-19, with $0.2 million in remaining amortization. The government will also revitalize water services, improve services for long-range water forecasts, test and implement new technologies, and expand technical and engineering capacity through a budget allocation of $69.5 million over five years, starting the next fiscal year, with $7.3 million in remaining amortization. There is also support for the operation of water stations cost-shared with the provinces and territories to the tune of $9.8 million over five years, starting in 2018-19, with remaining amortization of $3.1 million.
For businesses seeking tax deductions through investing in clean-energy generation and using energy-efficient equipment, Budget 2018 is extending the deadline to claim deductions for these assets from 2020 until 2025, which represents an investment of $123 million between now and 2022-23, according to the government. This initiative will increase the after-tax income of about 900 businesses that will receive, on average, an additional $27,000 annually over the next five years to use to invest in and grow their operations while reducing their carbon footprint.
In other measures, the government plans to extend the 15-per-cent Mineral Exploration Tax Credit, which helps junior exploration companies raise capital, by one year until March 31, 2019. The government says this will result in a net reduction of federal revenues of about $45 million over the 2018-19 to 2019-20 period. There is also new money to prevent the spread of budworm in Eastern Canada’s forestry sector. For this initiative, Budget 2018 will give Natural Resources Canada $74.75 over five years, starting in 2018-19, based on a 60:40 federal-to-provincial and industry cost-sharing basis. Fisheries and Oceans Canada will also receive $250 million over two years, starting in 2018-19, to help it renew, in part, its network of small-craft harbours.
In response to one of the Calls to Action of the Truth and Reconciliation Commission of Canada, Parks Canada will receive $23.9 million over five years, starting in 2018-19, to integrate Indigenous views, history and heritage into national parks, marine conservation areas and historic sites it manages.

Health

In 2018-19, the federal government will provide $38.6 billion to the provinces and territories under the Canada Health Transfer, a year-over-year increase of $1.4 billion.
To address the opioid crisis, Budget 2018 sets aside $231.4 million over five years, starting in 2018-19, with $1.9 million in remaining amortization and $13.5 million per year ongoing. The money will be used to:
▪ provide one-time emergency funding of $150 million for provinces and territories for multi-year projects that improve access to evidence-based treatment services;
▪ launch a public-education campaign to address stigma that creates barriers for those seeking treatment;
▪ improve access to public-health data and analysis to better understand the crisis and inform strategies to address it;
▪ equip border agents with detection and identification tools to intercept fentanyl and other substance at ports of entry; and
▪ expand the federal Substance Use and Addictions Program to develop innovative approaches to treatment and prevention.
As expected with Eric Hoskins’ resignation yesterday as Ontario’s health minister, the government is creating an Advisory Council on the Implementation of National Pharmacare, which Hoskins will chair. The council will report to both the Health and Finance ministers, and conduct an economic and social assessment of domestic and international models and recommend options on how to move forward.

Budget 2018 also allocates $20 million over five years, starting in the next fiscal year, and $4 million per year ongoing, to the Public Health Agency of Canada to support community-based projects that address the challenges of dementia, such as those that provide mental-health supports and information about self-care for family caregivers. The agency will also receive $75 million in 2018-19 to support the Healthy Seniors Pilot Project in New Brunswick, a province whose population is aging faster than anywhere else in Canada. Thalidomide survivors, who have been excluded from receiving financial assistance from a federal program, will receive tax-free and annual payments, but the details will not be released until the spring. The federal government will also provide $20 million over five years for two new initiatives to support Canadians impacted by autism spectrum disorder, including the creation of an Autism-Intellectual Developmental Disabilities Natural Resource and Exchange Network.
The government is extending the Medical Expense Tax Credit for the use of psychiatric service dogs indefinitely, and is committing $80.5 million over five years, starting in 2018-19, with $17.7 million annually, toward the Federal Tobacco Control Strategy. Some of the funds will go toward combatting the sale of contraband tobacco and its use, particularly within First Nations, The government is also increasing the tobacco tax by adding $1 in excise duty on a carton of 200 cigarettes.
To prepare for the legalization of cannabis, Budget 2018 proposes to provide $62.5 million, over five years, starting in 2018-19, for public education and $10 million over five years to the Mental Health Commission of Canada to help assess the impact of cannabis use. The Canadian Centre on Substance Use and Addiction will receive the same amount over the same period for research on cannabis use.

Employment and Skills Development

The gender-focused elements of Budget 2018 are particularly evident in initiatives related to employment and skills, many of which are aimed at increasing workforce participation by women. While this aligns with the government’s political brand, tapping economic potential through broader workforce participation was also a recommendation of the Finance Minister’s Advisory Council on Economic Growth.
The government plans to rename the Working Income Tax Benefit as the Canada Workers Benefit as of next year and increase the maximum benefits by up to $170 in 2019 using funding announced in the 2017 Fall Economic Statement. A new EI Parental Sharing Benefit for two-parent families, including adoptive and same-sex couples, is expected to come on stream in June.
Starting in 2018-19, the government will provide an additional $448.5 million over five years to the Youth Employment Strategy and up to $27.5 million over the same period, and $5.5 million annually thereafter, from Employment and Social Development Canada’s budget to support a secure Education and Labour Market Longitudinal Linkage Platform to be housed at Statistics Canada to track labour-market data and make it available to the public.
Budget 2018 also proposes to make permanent the rules regarding the EI Working While on Claim pilot project that allows claimants to keep 50 cents of their EI benefits for every dollar they earn. The government estimates this will cost $351.9 million over five years, starting in 2018-19, and $80.1 million year-per-year thereafter. To help workers in seasonal industries, the government plans to invest $80 million in 2018-19 and $150 million in 2019-20 through federal-provincial Labour Market Development Agreements. Employment and Social Development Canada will also reallocate $10 million from existing departmental resources to provide immediate income support and training to affected workers.
To encourage women to pursue careers in male-dominated (and better-paid) Red Seal trades, the government is allocating $19.9 million over five years, starting in 2018-19, to pilot an Apprenticeship Incentive Grant for Women that would provide a woman with $3,000 for each of her first two years of training. The government is also allocating $10 million over three years from Employment and Social Development Canada’s existing resources to launch a Women in Construction Fund in 2018-19.

Indigenous Affairs

Budget 2018 proposes a $5-billion investment over five years to benefit Indigenous peoples. Of that, more than $1.4 billion in new funding over six years (starting in the current fiscal year) will go to First Nations Child and Family Services. More money ($172.6 million over three years beginning in 2018-19) will go to improve access to clean and safe drinking water on reserves. The government is also investing $2 billion over five years, and $408.2 million per year thereafter, to establish an Indigenous Skills and Employment Training Program that will replace the Aboriginal Skills and Employment Training Strategy.
To keep Indigenous families healthy, the government is investing $1.5 billion over five years, starting in 2018-19, and $149 million annually thereafter. About one-third ($498 million) of the money will be used to provide access to critical medical care and services in remote and isolated First Nations communities. The government is also helping to strengthen First Nations institutions and community capacity through a $188.6-million investment over five years.

Gender Equity

On gender equity, the government will ask the Standing Committee on Procedure and House Affairs to examine making it a requirement that a gender-based analysis plus (GBA+) be tabled along with the federal budget.
Budget 2018 proposes to provide $105 million over five years to regional development agencies to support investments in women-led businesses, and $10 million over five years, starting in 2018-19, to connect women with expanded export services and opportunities through the Business Women in International Trade Program.

Science, Research and Innovation

While Budget 2017 was widely regarded as the “Innovation Budget,” opening new funding streams through blockbuster programs such as the Innovation Superclusters Initiative, Budget 2018 is focused on fundamental science and research and includes several recommendations made in the report from the expert panel on Canada’s Fundamental Science Review, led by Dr. David Naylor. More specifically, Budget 2018 proposes to invest almost $4 billion in science and research, including measures that will make innovation programs easier to access and use and expand support for Canadian companies that want to sell their innovations in the global marketplace. The new funding includes more than $1.7 billion over five years to support the next generation of Canadian researchers through the national granting councils and research institutes – constituting what the government says is the single-largest investment in fundamental research in Canadian history. It also includes more than $1.3 billion over five years for investments in laboratories, equipment and infrastructure. The three main granting councils (NSERC, CIHR and SSHRC) will receive $925 million over five years. But Budget 2018 also proposes to create a new tri-council fund to support research that is “international, interdisciplinary, fast-breaking and higher-risk” and which would receive $275 million over five years. The Social Sciences and Humanities Research Council would administer the fund.

Opposition Reaction

Conservative Leader Andrew Scheer framed the budget as another failure and disappointment by Prime Minister Trudeau. More taxes. More debt. More spending that doesn’t offer solutions for hardworking Canadians. The Conservatives believe the Liberal government is not putting “people before government,” citing tax hikes and growing debt and no plan to balance the budget. Shadow Ministers fanned out across the country in major media markets (Quebec City, Winnipeg, Regina, Victoria, Edmonton, Toronto) and reiterated their main message: that “…after almost three years of Justin Trudeau, never has a politician boasted so loudly, and spent so much, to achieve so little.”
The New Democrats also criticized Budget 2018. NDP Leader Jagmeet Singh said he was concerned the government’s efforts to increase the participation of women in the workforce were not provided any funds. He also pointed to a lack of measures to combat income inequality and nothing to close tax loopholes or stop offshore tax havens. On pharmacare, Singh said the government is not proposing a plan but rather a “fantasy” because no funding is allocated for it in the budget. He also said not enough is being done to combat a shortage of affordable housing, which he called a national crisis.