Government Aims to Set a Course for Equitable Economic Growth and a Clean Technology Transition
To put Canada’s first federal budget in over two years into perspective, it is helpful to look at our current economic picture from a higher altitude. Growth surged to nearly 10 per cent in the fourth quarter of last year and unemployment went down to 7.5 per cent, adding 303,100 jobs in March. That is triple what many economists were expecting. All of this is positively impacting consumer confidence, which is now at a three-year high.
These data points should be cause for optimism, proof of our resilience in the face of a crisis that has charted its own, inexorable path of devastation through sectors – like aviation, restaurant and storefront retail – most affected by a factor we had no term for until COVID-19: social distancing.
Yet timing in politics, as it turns out, really is everything. The Liberals, early in the drafting of this document, thematically divided its commitments into three “buckets”
- Finishing the fight against COVID
- Focusing on jobs and growth through social infrastructure
- Building a better fairer country by looking at long-term strategies to address the systemic inequities the pandemic exposed.
As third wave infection rates have taken off with the spread of new variants and provinces have scrambled to implement – or re-implement – measures to contain the virus, the economic horizon remains overcast at best for many. Building back better does not have quite the hopeful ring to it when, despite the rollout of vaccines, Canadians have an overwhelming sense of reversion to the starkest limitations on interactions – and economic transactions – once again.
The government has stated that if they could reduce the budget to one line – out of a whopping 724 pages – it would be “we are all in this together.” They have focused on early learning, support for low wage workers, racialized Canadians and young people, micro-targeting investments and stimulus measures to ensure that the economic recovery is truly equitable.
It is an effort to ensure that what we’re seeing in growth numbers actually begins to be felt by those whose greatest concern is that they will be left behind in a rapidly evolving economy.
Such measures may prove to be ultimately effective, but it is also the macroeconomic considerations for investment and growth that are of note. The promise of a return to a still-notional fiscal anchor was fulfilled.
This budget commits to a debt to GDP ratio that will be below 50 per cent by 2026, which fares well in comparison to other OECD countries currently. A more salient comparison might be to the debt to GDP ratios recorded in the high 60s back in the early nineties here in Canada – or the 100 per cent recorded in 1945-46.
The most contentious line items in this budget, what might prove that we are actually not in this together from a Conservative perspective, are what Liberals say will “put Canada on the front foot” with a transition for our economy, with green investments comparable to – and aligned with – the Biden administration’s ambitious social infrastructure bill.
Yet the focus on incentives for growth and support for small and medium sized businesses may temper any preliminary thoughts on triggering a vote that would bring down this government.
Given the force of the third wave and the lack of any clear “poison pills” in this hefty tome, we are likely in this together at least until the fall, when, vaccinated and headed for some measure of economic recovery, Canadians might be more amenable to an election.
More Than $100 Billion in New Spending
Finance Minister Chrystia Freeland committed in the Throne Speech to providing between $70-100 billion in stimulus spending in her government’s next budget, and Budget 2021 fully delivered on that commitment, providing just over $101 billion in new spending measures. The total deficit is projected to sit at $354.2 billion in 2020-21, which is smaller than was predicted and can be attributed to strong economic growth over the winter months.
Total government debt is currently estimated to be $1.2 trillion for this fiscal year with a projected deficit in 2021-22 of $154.7 billion. While there was speculation as to whether this budget would or would not include a fiscal anchor, Finance Minister Freeland did commit to one – a declining debt-to-GDP ratio.
Freeland also indicated that the “unwinding of COVID-related deficits” would be a measure the government would look to as an additional anchor. According to the government’s projections, we can expect that the federal deficit will have declined by over $100 billion, to just over $30 billion in 2025-26.
While economic growth projections for Canada were strong heading into March – causing some to warn against a budget with significant stimulus spending – the pandemic’s third wave puts all those projections up in the air.
Reinforcements for Health, Wellness and Life Sciences
Budget 2021 reaffirmed that national pharmacare remains an important initiative for the government, highlighting that they have committed to accelerate steps toward implementation through the creation of a national strategy for high-cost drugs for rare diseases, investing $500 million for the program.
In light of COVID-19, the government is also promoting Regulatory Cooperation with Trusted International Partners. This commitment to enhancing Canada’s drug approval process by promoting alignment and collaboration with trusted regulators in other countries will ensure that safe and effective drugs are available to Canadians more quickly.
Several other initiatives proposed in Budget 2021 also include targeted support for the life sciences and bio-manufacturing sector. Investments include $250 million to the tri-councils to create a new biomedical research fund, $1 billion to the Strategic Innovation Fund earmarked for life sciences and bio-innovations, $500 million to the Canada Foundation for Innovation to deliver laboratory upgrades related to bio-innovation, $59 million to VIDO-Intervac to enhance vaccine capacity, $45 million to support the Stem Cell Network, and $28 million to support research in anti-microbial resistance.
While there are no new commitments to the National Pharmacare program and no commitment to increase Canadian Health Transfers, Budget 2021 made significant new investments towards data infrastructure and data collection, mental health supports and indigenous health, signaling a focus on service delivery, especially for remote communities.
“A Healthy Environment for a Healthy Economy”
There is a total investment of $17.6 billion towards a green recovery to create jobs, build a cleaner economy, and to fight against and protect us from climate change.
The government announced an additional $5 billion over 7 years to the Net Zero Accelerator, which will bring the total money available from this fund to $8 billion.
There is solid support for carbon capture and storage technologies, with a $319 million investment into helping develop the technology, as well as an investment tax credit for capital invested in the technology. The government hopes that these programs can reach the goal of reducing emissions by at least 15 megatonnes of CO2 annually but didn’t provide a timeline on that goal.
There are also federal supports to Natural Resources Canada to the tune of just under $1 billion over the next 4 years to support renewable power generation projects and the deployment of grid modernization technologies.
There is not much in the way of nuclear support – just a promise for a yet to be determined amount of funding in the future to the Chalk River Laboratories, and the establishment of an Atomic Workers Recognition Program, with $22.3 million over two years.
$1.4 billion is promised over the next 12 years to help with disaster mitigation through the Disaster Mitigation and Adaptation Fund. The money will support wildfire mitigation programs, rehabilitation of storm water systems, and restoration of wetlands and shorelines.
Tax measures aimed at the transition to a green economy include a 50 per cent reduction of the general corporate and small business income tax rates for businesses that manufacture zero emission technologies; as well as a tax on the retail sale of new luxury cars and personal aircraft priced over $100,000 and boats priced over $250,000.
This budget also proposes to change the delivery of Climate Action Incentive payments from a refundable credit claimed annually on personal income tax returns to quarterly payments made through the benefit system starting in 2022.
The government will also publish a green bond framework in the coming months in advance of issuing its inaugural federal green bond in 2021-22, with an issuance target of $5 billion. The framework will provide details on how, through green bonds, investors will have opportunities to finance Canada’s work to fight climate change and protect the environment.
Training a Workforce for the Future
Budget 2021 makes significant new investments in workforce development, jobs, and training, recognizing the impact that the pandemic has had on employment, and responding to the government’s commitment to restore the one million jobs lost during the pandemic.
Also recognizing that many Canadians are still unemployed, Budget 2021 extends income supports and proposes to make Employment Insurance more accessible.
Budget 2021 includes creative new measures targeted at getting more Canadians back into the workforce faster, and measures that will aid employers in adopting digital technologies – helping them adapt to increased demand for online services. Recognizing there is need to support students and young people, Budget 2021 also makes significant new investments in existing programs that connect youth to jobs. Notable new investments are:
- Community Workforce Development Program: $55 million for communities to develop local initiatives that connect high potential growth organizations and training providers to develop and deliver training and work placements to upskill and reskill jobseekers to fill jobs in demand.
- Sectoral Workforce Solutions Program: $960 million to help design and deliver training that is relevant to the needs of businesses, especially SMEs, and to their employees.
- Canada Digital Adoption Program: Training 28,000 Canadians to help as many as 160,000 small and medium-sized businesses adopt new digital technologies
- Canada Recovery Hiring Program: Proposed subsidy to offset a portion of the extra costs employers take on as they reopen, either by increasing wages or hours worked, or hiring more staff.
- Scaling proven upskilling programs: $250 million for an initiative to scale-up proven industry-led, third-party delivered approaches to upskill and redeploy workers to meet the needs of growing industries.
Building the Digital Economy
One could look at the 2021 Budget as the first budget that truly recognized that the digital economy is the economy.
While the Liberal government continued efforts to bolster both innovation in the digital sphere, it also comes of age by recognizing Canada needs to do more than funnel money to start-ups and hope for the next Shopify.
To wit, investments in helping small-and-medium sized businesses secure their intellectual property, a major budget recommendation of Canada’s leading innovative companies. And there is additional funding for the Industrial Research Assistance Program that will help start-ups build before being bought, a perennial problem in Canada.
With this comes the realization that unfettered digital marketplaces can have real-world effects on workers, industries and the ability of governments to generate revenue. The government uses this budget to propose fairer treatment for those working in the gig economy. Lastly but by no means least, it is proposing a digital services tax on the largest digital companies who rely on data and content from their users to generate revenue.
For many companies who are in the throes of the third wave, a Budget focused on recovery is not a Budget that speaks to the present. Early on, it was rumoured that the Liberals were writing two Budgets – one for recovery and one for a continued pandemic. The final product nods to recovery while keeping in place many of the original programs that have helped mainstreet stay afloat. The wage subsidy and rent subsidy will be extended again until July 4th and then begin a phase out period that will run until the end of September.
Budget 2021 also proposes implementing a series of measures in the regulatory and tax areas, with emphasis on the environment, strengthening capital market stability and economic competitiveness.
Budget 2021 proposes to provide up to $6.1 million over two years, starting in 2021-22, to renew the External Advisory Committee on Regulatory Competitiveness and to continue targeted regulatory reviews.
It will increase the statutory limit in the Canadian Securities Regulation Regime Transition Office Act to ensure additional funding for the Canadian Securities Transition Office to continue supporting federal efforts to advance the Cooperative Capital Markets Regulatory System and to strengthen capital markets stability and enforcement in Canada.
The government intends to introduce a second annual cleanup legislation to concurrently amend multiple acts to improve regulations and remove outdated or duplicative regulatory requirements that will strengthen Canada’s economic competitiveness.
The budget will amend legislation and regulations to expand the types of revenues that First Nations may use to support borrowing from the First Nations Finance Authority
It also proposes amendments to the Income Tax Act to eliminate the tax benefits of hybrid mismatch arrangements.
The government will make changes to the Customs Act to improve duty and tax collection, as well as additional funding of $304.1 million over 5 years to allow the CRA fund new initiatives and extend existing programs such as GST/HST audits of large businesses. It also looks to modernize the CRA’s risk assessment process to prevent unwarranted and fraudulent GST/HST refund and rebate claims.
Support for Social Foundations
Recognizing the impacts of a pandemic that has created a she-cession borne of working mothers having to make an agonizing choice between their careers and their children, Canada’s first female Finance Minister set the stage for her first budget around a recovery that made social investments to boost economic vitality.
Liberals are fond of calling program spending “investments” but Freeland’s push for national childcare is shared by educators and executives alike. The determination to place childcare on the same level as healthcare with major funding commitments and bilateral federal-provincial agreements is a major structural change that could outlive any tax credit or subsidy program.
With major investments in affordable housing that build on the already-robust National Housing Strategy, the federal government is focusing spending on both core and program infrastructure in Budget 2021.
The federal government continues to prioritize support for Indigenous Peoples and their communities. The Budget includes $18 billion to support reconciliation, narrow funding gaps and support economic growth.
Throughout the pandemic the government has focused on introducing and amending broad-based business support programs over sector-specific funding. While Budget 2021’s proposed extension of several COVID response programs continues this, the budget also proposes some new sector focused recovery and growth measures.
Tourism and Culture: The budget proposes several measures to support Canada’s visitor economy, including the establishment of a $500 million Tourism Relief Fund to support local tourism businesses. The budget also proposes $200 million to support major festivals, and $200 million to support local festivals, events and attractions along with $100 million in tourism marketing funding for Destination Canada. Along with this was major funding commitments for the hardest-hit parts of Canada’s cultural industries as well as support for the CBC.
Transportation: The most notable transportation investment proposed the budget is $1.9 billion to recapitalize the National Trade Corridors Fund, a high demand program that partners with the private sector and other levels of government to invest in projects that address transportation bottlenecks and inefficiencies in Canada’s trade corridors. For air transportation the budget also proposes funding for airports to invest in COVID-19 testing infrastructure, $271 million in funding for CATSA operations and enhanced screening, and funding to continue to advance the Known Traveller Identity pilot project. $250 million is also being proposed for the Regional Development Agencies to deliver what is being called the Aerospace Regional Recovery Initiative. The budget also proposes funding for VIA Rail to continue advancing and investing in infrastructure that will support their high frequency rail project that will create new trains on dedicated tracks along the Quebec City-Windsor Corridor.
Agriculture and Agri-Food: Much of the agricultural funding in Budget 2021 is focused on climate action, such as the $200 million Agricultural Climate Solutions Program that will invest in projects to accelerate reductions on-farm. In trade-adjustment support, the budget proposes $293 million in funding for a Processor Investment Fund to help processors of all supply-managed agricultural products adapt to CETA and CPTPP by supporting private investment in processing plants. It also provides $101 million to create a program that will support wineries in adapting to challenges in line with Canada’s trade obligations.
Fisheries: The most significant fisheries investments in Budget 2021 included $647 million to stabilize and conserve wild Pacific salmon populations and a $300 million investment to repair, renew and replace small craft harbours. The budget also proposes several conservation and preservation investments, including $977 million to help protect marine and coastal areas.
Defence + Procurement: The government is not wavering significantly from its 2017 Defence Policy – Strong, Secure, Engaged – which planned to increase defence spending to $32.7 billion per year by 2026-2027. Even with the projected federal deficit due to COVID-19, the federal government will uphold planned defence spending. With mounting pressure from the Biden Administration to increase defence spending even further, Budget 2021 provides an additional $163 million over five years to support NORAD modernization, laying the groundwork for discussions with the United States on NORAD renewal. Budget 2021 also provides an additional $541 million over five years as part of the NATO Readiness Initiative and up to $306 million to cover increased Canadian contributions to NATO’s common budget and military activities.
Reactions from Across the “Aisle”
In the lead-up to the tabling of the budget 2021 there was no suspense as to whether the minority government would have sufficient support from one of the opposition parties in the House of Commons to survive a confidence vote on the budget and avoid a spring election. Jagmeet Singh indicated that the NDP would support the budget and that they had “other ways” to hold the government to account beyond forcing an election.
Conservative Party of Canada
In his pre-budget press conference Erin O’Toole, Leader of the Official Opposition indicated his support the budget would be dependent on three things:
- A plan for jobs in all sectors and regions
- Enhanced competitiveness
- A plan to get the budget back to balance.
Once it was tabled, Mr. O’Toole was quick to come out against the budget noting in his press conference that “…Canadians were expecting a pandemic budget and that this is an election budget and a poor one at that.”
Mr. O’Toole stated that the budget does nothing to answer the calls of Ontario, Quebec, BC, Alberta and other provinces seeking more vaccines. The official statement issued by Mr. O’Toole went on to raise concerns about an “out-of-control debt plan without any real stimulus, one that abandons the natural resource sector entirely and provides no real fiscal anchor.”
The Official Opposition will be proposing amendments to the budget based on their policies because the budget falls short.
New Democratic Party
Despite indicating in recent days that his party would not force an election based on the budget, NDP leader Jagmeet Singh had harsh words noting that the budget did not sufficiently target the ‘ultra-rich’ by not including a wealth tax, an excess profits tax and consultation instead of action on tax havens reform.
Mr. Singh noted the budget abandons the Liberals pharmacare commitment and doesn’t hold ‘ultra-rich’ companies accountable for the deficit. Despite this Mr. Singh has pledged not to force an election.
Bloc Québécois leader Yves-François Blanchet had indicated that he would likely support the budget if it sufficiently boosted monthly support for seniors and had no-strings-attached health transfers to the provinces. Following its tabling, Mr. Blanchet said that “there are some good things” in the budget but that his party will be proposing amendments to improve supports for seniors and to increase provincial health transfers.
Ahead of the budget, Green Party leader Annamie Paul noted her desire to stave off an election and have all parties work together to better protect Canadians during the third wave of the pandemic. Post-budget, the Green Party leader noted the absence of any commitments to universal basic income (UBI) and suggested this is a policy on which all parties should collaborate to deliver moving forward.
An Eye to the Future
The House of Commons has 42 sitting days before it adjourns for the summer, with three straight weeks of sittings ahead of it. There should be no risk to the Budget Implementation Act achieving passage through the House and the Senate in time, should it enjoy the confidence to move forward. Budget votes are votes of confidence and if the government were to lose a vote, it would be defeated, triggering an election.
The NDP has said they will not defeat the government in the current pandemic. Other parties, most notably the Conservatives, have said it is not the time for an election. The Liberals can feel relatively safe that while the budget will garner its fair share of partisan criticism, it will survive intact.
However, more days dedicated to budget bill debates translates to less time allocated for other important legislation on the government’s agenda, such as changes to the Canadian Environmental Protection Act or C-11, the government’s update to Canada’s privacy regime.
Governing is about decisions and priorities, and we are about to see which other legislative initiatives the Liberals truly value and believe they need to deliver for important constituencies to show progress on the 2019 platform.
On the fiscal side, the budget document speaks to new consultations and new programs with significant funding for fiscal year 2021-22. This government has spent the last year allocating and distributing funding at a record pace. Not only has it learned how to trim down time between concept and rollout, but it has also trained stakeholders to expect it. There will be unprecedented pressure on departments to quickly interpret how their budget recommendations were communicated in the final draft and begin work on design and implementation.
All of this is happening against the backdrop of a possible summer election. This note will not go into predictions of whether an election will or will not happen, but the Liberal party for some time now has been gearing up to fight an election in 2021. Senior organizers have left roles in government to begin preparations as MPs are quietly urged to commit or announce they will not run again. This budget will heavily inform the Liberal platform with many of the spending envelopes 5 years in length, signaling what a Liberal government would do with a majority mandate.
Perhaps the most consequential aspect of this budget is not just the progress toward a national childcare program, but a choice. Remember that governing is about priorities, and before the pandemic showed cracks and fissures in Canada’s social fabric caused by the lack of adequate childcare, the Liberals’ major contribution to social policy was shaping up to be a national pharmacare plan. This budget showed little to no progress on that front, rehashing previous promises from Budget 2019.
As well, the NDP have become more convincing advocates for national pharmacare, advocating for a program that would be more universal while tying it to other national programs like dental care that would bolster Canada’s definition of healthcare. With a winning issue turning into a losing one, the Liberals are now offering the choice between the party who cares about both but has prioritized childcare and a party who promises it all, despite a need to reduce expenditures in the coming years. How this argument will be received in the wake of a $155 billion deficit will be the up to Canadians.