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Budget 2021: All About the Numbers – But Not the Ones You Think

Finance Minister Chrystia Freeland’s first Budget – the first delivered by a woman, and Canada’s first Budget in over two years – provides a very broad suite of new programs to help cope with the continuing pandemic challenges, kick start the economy and build a more “fair and inclusive” economy.  Whether it achieves its fiscal, economic and social targets time will tell but one goal this budget definitely sought to achieve was to set out the Liberal government’s path from a minority to a majority government.

The Budget’s Political Context

The Budget will ultimately be the core of the Liberal platform, whether an election is in six weeks (very unlikely) or in six months (much more likely). The NDP has clearly indicated that it will not vote against the government to force elections, especially considering the spending on historically left wing programs. This means the onus will be on the Prime Minister to call the election. The Liberals have crafted a Budget that they believe will win them an election focused on middle-class and working families, women, seniors, and minority voters, concentrated in the Lower Mainland/604, GTA/905 and South Shore/North Shore/450. These suburban areas with large numbers of swing ridings will likely be decisive if the Liberals are to reach the magic number of 170 seats necessary for a majority (they won 157 in 2019) – and their area codes represent the numbers that matter.

Along with continuing pandemic-related supports that voters like, the Liberals have decided to invest in a number of progressive areas that aim at those demographic groups and undercut competition from the NDP and Greens. These include child care, seniors and climate change, the top line issues that the Liberals want to run their next campaign on. A record deficit and debt and no clear path back to balance or a fiscal anchor that will drive the government there, are obvious vulnerabilities that the Conservatives will focus on, describing the Liberals as risky and irresponsible spenders. The Liberals have clearly set up child care as a major electoral theme (since most of the actual implementation will come after a fall election) and are evidently hoping that the Tories will oppose the plan and argue for a direct to parent tax break – much as Stephen Harper did in 2006. On this point, it looks like both parties will have an electoral battle they both seem to want.

Budget Breakdown

Social Programs 

A proposed national child care program has captured headlines, and will likely serve as a key Liberal platform plank – as it stands, six 905 swing ridings and a key British Columbia seat are among the areas with the 10 highest monthly child care costs. The planned $30 billion investment over a five-year period and $8.3 billion every year following will be heavily contingent on each province’s desire to participate and co-fund the program at a 50/50 cost share. The goal is to reach a $10/day average cost by 2027 (five years into implementation), which the government projects will help up to 240,000 individuals, mostly women, enter and re-enter the workforce. 

On housing, the federal government announced the imposition of a national tax on vacant properties owned by non-residents, effective January 1, 2022. An additional $2.5 billion investment will be put towards building and supporting 35,000 units of affordable housing. On seniors, the pandemic has hit Canada’s long-term care homes hard, and in response the Liberals have pledged $3 billion over the next five years to establish a national standard for such homes. As well, a $12 billion expansion of Old Age Security (OAS) over the next five years will see a one-time payment in August 2021 – possibly just before an election – of $500 to each individual 75 years of age and older, and an ongoing 10% increase on regular pensioner payments as of July 2022. Finally, the government will implement a $15 federal minimum wage that will directly impact over 26,000 workers, over a third of whom are newcomers and recent immigrants to Canada. 

Continued COVID-19 Supports

The suite of COVID-era supports – the Canada Emergency Response Benefit (CERB), Canada Recovery Benefit (CRB) Canada Recovery Sickness Benefit (CRSB), and Canada Recovery Caregiving Benefit (CRCB) – will be continued through to September, at the earliest. While the programs are expected to have cost $57.3 billion in 2020-21, this will drop to $13.9 billion over 2021-22 as Canada’s economy continues to recover. Employment Insurance sickness benefits will also be extended – presumably indefinitely – from 15 weeks to 26 weeks. 

Economic Stimulus

The pursuit of a “Green Recovery” has been a foundational aspect of the Liberal government’s pandemic response since the September 2020 Throne Speech. The Budget’s additional funding within this vein includes: $5 billion to help heavy industry slash emissions, $4.4 billion for a new loan program for home renovations, $3.4 billion to protect more land/oceans, and a 50% tax cut for clean tech companies. Further, Budget 2021 aims to create 500,000 jobs – including 215,000 for young people. This job creation effort will be supported by programs such as the Canada Recovery Hiring Program, which will cost $595 million in 2021-22 in order to incentivize corporations, charities, and non-profit organizations to hire qualified Canadians. 

Fiscal Situation 

The federal deficit will come in at $354 billion for 2020-21, down from the original projection of $384 billion, due to a greater recovery than expected. The Budget’s economic overview was not accompanied by a further fiscal anchor (i.e. a measure with which to assess the sustainability of debt) beyond the existing debt-to-GDP ratio, which will sit at 51.2% over 2021-22 as per current projections. Given continued recovery at the expected level, the debt-to-GDP ratio will drop to 49.2% by 2025-26, and to 47.0% given a quicker recovery. While Canada has the lowest debt-to-GDP ratio among G7 nations, notably absent from the Budget is an explanation on how the government plans to pay back the debt in decades to come. The Liberals are hoping that their reference to the deficit-to-GDP as a ratio akin to an anchor – going down to 1.1% in 2025-26 – will assuage voters who are concerned about the sustainability of spending.

Opposition Critique

In Conservative leader Erin O’Toole’s first Budget response, the messaging was grounded in the historically-high deficit and debt, and questions about a return to fiscal responsibility. The Conservatives will try to take advantage of the Liberals’ dependence on the debt-to-GDP ratio as a form of fiscal framework, knowing that some Canadians will not be satisfied without more concrete promises.  And in line with Tory sentiments in the years of former Prime Minister Stephen Harper, Conservatives are hoping for a child care function that supports working parents without forcing a “one-size-fits-all” approach upon the provinces. O’Toole also reiterated his criticism of the government’s vaccine procurement and that most of the economic measures in the Budget are merely band-aid solutions to broader governance issues. 

NDP Leader Jagmeet Singh’s response targeted the ultra-rich, saying that they are not paying their fair share. Expect this to be his key campaign message, along with reiterating his disappointment in the lack of a national pharmacare program. While the Liberals included a number of core NDP issues, Singh repeated his attack that  Justin Trudeau often says the right thing, but never follows through. The NDP will however take the parts of the Budget they like and tell voters that these were their policies that they forced the Liberals to implement.

Bloc leader Yves-François Blanchet focused his criticism on seniors, specifically the government’s encroachment on provincial jurisdiction for funding to support standards for long-term care, and for the lack of a commitment to additional and unconditional healthcare transfers to provinces. These are both areas where he’s banking on the Quebec government’s support.

What’s Next?

There is no specific day that the Budget has to pass by. MPs will vote this week on taking up the Budget for its initial debate over the next few weeks, with a final vote sometime before Parliament breaks for the summer on June 23. 

Naturally, if the Government of Canada’s 2021 Budget does not pass, it will trigger an election. However, as mentioned above, NDP leader Jagmeet Singh has vowed to not trigger an election while the pandemic continues, and the Liberals only need the support of one opposition party in order to pass it. 

In the short term, there doesn’t seem to be any reason to expect an election; an early fall election still seems likely but it will be up to the Liberals to justify going to the polls if they are able to pass their Budget and implement their program. By that time, the Budget may remain an important part of the policies they run on but voters will be just as likely to base their choice on the success (or not) of the vaccine rollout, and an improved COVID-19 environment.

For help navigating the Government of Canada, to discuss this Perspective, of to receive McMillan Vantage’s bi-weekly COVID-19 updates, please email info@mcmillanvantage.com.



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