Finance Minister Chrystia Freeland’s third budget is leaner than we’ve seen in years but it maintains the Liberal government’s focus on building a green economy and helping households’ own budgets.
Freeland’s fiscal plan offers a number of measures to help households – including an extended GST/HST rebate top-up branded as a “grocery rebate”, expansion of the government’s nascent dental care plan and a crackdown on high telecom, ticket, baggage, and shipping fees.
More broadly, the budget outlines some big-picture economic steps, such as an entire chapter touting a “Made-in-Canada Plan” for a green-energy economy that could just as easily be titled “Canada responds to the U.S. Inflation Reduction Act.”
This includes a new $4.5 billion Investment Tax Credit for Clean Technology Manufacturing, which largely fleshes out details of already-promised tax credits for green hydrogen and electricity production.
Many of the “new” initiatives, in fact, are detailed announcements of money “booked” in last year’s budget or in the 2022 Fall Economic Statement. This means the substance of this document is more about the details of already-promised programs than about spending “new” money. In fact, the “new” money in the budget is split between healthcare (including expanded dental care) and further funding for a green economy and the supply chain required to build it.
Despite this, the budget does not have the path to balance that was evident in the Fall Economic Statement, largely thanks to the recent health transfer deal with the provinces, $13 billion for dental care for all eligible uninsured Canadians and new tax credits.
Before we dig into the details — the winners and losers, the consultations, regulations and future opportunities to engage — here are the big numbers you need to know from the budget:
$40.1 billion – projected 2023/24 deficit
$14 billion – projected deficit in 2027/28 (from a modest surplus projected in the 2022 Fall Economic Statement)
$90,000 – the annual household income cap for eligibility for dental care, expanded to all Canadians, with co-pays in place up until $70,000 a year in household income.
$467 – the amount of the Grocery Rebate (based on GST/HST rebate eligibility) that a family of four will receive. The money will be issued as a one-time payout, without any requirement on how its spent.
Below, we offer seven Ps, with a touch of cheating, to guide you on what really matters in this budget, and then prognosticate on what’s next.
When Air Force One landed in Ottawa last week, pundits were quick to point out the obvious: Liberals were hoping that U.S. President Joe Biden would help change the channel on the domestic focus on China, election interference and CSIS links.
But what was less obvious, perhaps, was how well POTUS would key up a narrative that the Liberals are now seeking to carry-on through their 2023 budget.
Both the Liberal government and the White House see opportunity in stable continental supply chains, especially with regard to critical minerals. Biden, with his usual candor, or at least simplicity, said at the closing press conference: “Well, you guys — we don’t have the minerals to mine. You can mine them. You don’t want to produce — I mean, you know, turn them into product. We do.”
It was a theme throughout the visit – Canada has the raw goods America and our Western allies need in the face of Russian wars and Chinese disruption.
The Liberal government responded in turn with a budget that seeks to ensure Canada can do a better, faster job of getting those minerals out of the ground. And, despite what the president said, turn them into product as well.
What’s next: Budget 2023 promises that, by year’s end, the government will put forward a plan to improve the Impact Assessment process, which was created to tighten timelines for project approvals, but has failed to do so. The budget notes, “it should not take 12 years to open a critical minerals mine.”
Producing EV batteries and processing critical minerals
Over the past six months, almost every Cabinet minister’s speech has mentioned “critical minerals” or the “resources required to build electric vehicles”.
So, it’s no surprise that we find in the budget significant investments, and regulatory and policy changes to support critical minerals.. Budget 2023 measures build on the $1.5-billion Critical Mineral Infrastructure Fund that was announced in Budget 2022 and finally launched last week.
The new or renewed initiatives in Budget 2023 include:
- $500-million in new money combined with $1.5 billion in existing SIF funds to be directed to “clean technologies, critical minerals, and industrial transformation” projects;
- $1.3 billion “to the Impact Assessment Agency of Canada, the Canada Energy Regulator, the Canadian Nuclear Safety Commission, and ten other federal departments, to continue to improve the efficiency of assessments for major projects;”
- $10.6 million for Natural Resources Canada’s Centre of Excellence to help critical mineral miners navigate regulatory processes and another $40 million targeted to increasing capacity for Northern regulatory processes;
- Confirmation that the U.S. Inflation Reduction Act will take a “Buy North American” approach to critical minerals and electric vehicle battery manufacturing;
- Plans supporting a renewed clean-electricity grid across Canada and a 15% refundable Clean Electricity Tax Credit for eligible investments in low-to-no emission generating and transmission technologies, as well as storage;
- Details for implementing the promised Hydrogen Tax Credit, which will continue to be a tax credit on capital investment, with levels based on intensity of carbon impact and labour-force requirements;
- A path for implementing the long-promised Carbon Capture, Utilization and Storage (CCUS) tax credit, which includes a commitment that eligible companies will be able to retroactively apply. The government promises details in the coming months for further consultation;
- This is in addition to the new $4.5 billion Investment Tax Credit for Clean Technology Manufacturing – “a refundable tax credit equal to 30 per cent of the cost of investments in new machinery and equipment used to manufacture or process key clean technologies, and extract, process, or recycle key critical minerals.”
- Eligible initiatives will include mining or recycling critical minerals; producing, processing or recycling nuclear fuels or technologies; electrical power storage; electric vehicle manufacturing; as well as upstream activities associated to all of above.
What’s next: Consultations on a number of the proposed tax credits, either informal or formal, will dominate the spring as the budget bill is debated and amended and the subsequent regulations drafted. One of the most notable consultations to come will be on creating a “backstop” to the price of carbon. These “contracts for difference” will aim to “de-risk” and create “predictability” for carbon pricing. The budget announces that the government will consult on the development of a broad-based approach to carbon contracts “that aims to make carbon pricing even more predictable.”
Public Investment through the Canada Growth Fund
The $15-billion Canada Growth Fund sparked a lot of interest when it was announced in the 2022 Fall Economic Statement and the budget provides details on how it will actually work. In essence, the government money will act as an “angel investor” in green or clean technologies that are ready to scale or commercialize. This isn’t about funding research, but about helping small-to-medium sized companies grow, in exchange for some kind of an ownership stake. Large companies could, in theory, incorporate single projects and apply to the fund for support, but they would remain better served by SIF and other grant programs.
What’s next: Through the budget bill, the Public Sector Pension Investment Board (PSP Investments) will be given the power to manage the assets of the Canada Growth Fund. Once that step is completed, it will formally begin working with private companies to attract private capital investment in Canada’s clean economy.
The budget, while relatively lean, did outline a number of measures to ease the strain that high-inflation is placing on household budgets – hopefully without going so far as to exacerbate the problem. These include:
- Using the GST/HST system to create a one-time “Grocery Rebate” payout, costing about $2.5 billion and offering a family of four a $467 rebate and singles about $234;
- Banning interest rates over 35% — essentially banning most payday lending practices and bringing the rest of Canada in line with Quebec measures;
- To tackle housing affordability, the government is creating a new Tax-Free Savings Account vehicle for first-time homebuyers that makes out at $40,000;
- Expanding the dental care program to all uninsured Canadians in households with up to $90,000 a year in income, with no co-pays for individuals in households under $70,000;
- Industries as different as aviation and concert tickets are being hit with new restrictions on fees paid by consumers. While the government had previously indicated an ongoing review of the Competition Act might tackle initiatives like “drop pricing,” the budget is more explicit in stating that it will seek to reduce “junk fees” on everything from roaming charges to banking fees.
What’s next: Consultations on junk fees; the government promises to work with regulators and through legislation to tackle these fees. For telecoms, this means the CRTC and for other industries, long-awaited changes to the Competition Act, Bank Act or other legislation – which may be implemented as part of the budget bill or as standalone legislation.
The Budget does seek to ensure Canadian workers continue to get a fair deal in procurement both at home and abroad. The Budget promises to engage with provinces, unions and other stakeholders on “reciprocal procurement” measures that would limit the ability of foreign suppliers to access Canadian government procurements if that country did not allow Canadian businesses access to their own procurement markets. This provides a measured response for Canadian suppliers shut out by foreign protectionist policies. And with an eye to creating a preference program for Canadian small businesses, it is possibly as close to a “Buy Canadian” provision as trade agreements allow.
What’s next: In light of the “Buy America” provisions in the Inflation Reduction Act, the government will initiate targeted consultations on the possibility to introduce new reciprocal treatment for the measures in the government’s plan to build a clean economy.
Path to Balance? No
Budgets, it turns out, do not balance themselves. The 2022 Fall Economic Statement outlined a potential path to balance in 2027/28, but this evaporated in the face of the recent health-care spending deal with the provinces, implementation of dental-care as part of the confidence-and-supply agreement with the NDP, and the need to respond to the U.S. Inflation Reduction Act. There is now a projected $14-billion shortfall that year.
What’s next: We will be watching to see if Freeland kept spending tight enough to appease credit-rating agencies, which were warning about downgrades if the Finance Minister didn’t rein things in.
Ask anyone even remotely close to the PMO and they will protest loudly, even too much, that there are no plans to prorogue after the budget passes later this spring. There are too many good bills on the order paper, too much to do, they say.
It remains, however, a plausible idea.
Two years into a second minority, staff are burnt out. Parliament is more cantankerous then ever. Committee hijinks are spinning the news of the day.
Put simply: it may be time for a reset. One that allows the National Security and Intelligence Committee of Parliamentarians (NSICOP) and Special Rapporteur David Johnson to do their work on alleged Chinese election interference without the noise of the House. For the government to manage their findings, chart a path forward and then come back refreshed and refocused.
Then, in the fall, the government can deliver a throne speech with a view to regaining control of its agenda.
Doesn’t sound like a bad plan – does it?
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