April 19, 2021

Federal budget sprays a lot of water but misses much of the fire

Budget misses opportunity on investment and approach necessary to work with resource-producing regions on environment and economic recovery

ALBERTA—Today the federal government released its first budget in over two years—two years which have been transformational for Canadians, our businesses, and our economy. Throughout the pandemic, the Business Council of Alberta has supported federal efforts to deal with the crisis and protect Canadians and businesses, even at significant cost. However, in initial assessment, this budget appears to spray a lot of fiscal “water,” but misses many of the most important “fires” that will help get Canada back on a long-term path to prosperity and competitiveness.

Budget 2021 provides some key investments that will position Canada for the future, including a robust national childcare and early education program, and improvements to the innovation agenda—two key things we were looking for,” says Adam Legge, President of the Business Council of Alberta. “However, overall, the Business Council of Alberta is disappointed in this budget. It has a significant price tag but comes up woefully short on the ambition and approach necessary for Canada to become an economic and climate leader coming out of the COVID pandemic.”

Top Three Takeaways:

  • Environment: This budget states that climate and environment are critical priorities but comes up short on the investment and approach necessary to achieve Canada’s objectives, including meaningfully investing in emissions reduction potential in Canada’s resource industries, which is a significant impact for Alberta.
  • Jobs: The ultimate path to recovery is vaccines and a productive economy. Stimulus spending in the budget, while providing good program investments for skills development and youth, appears overly targeted at the immediate, versus a long-term and strategic productivity and economic growth agenda.
  • People: Significant investment in childcare and early learning is positive from a social and economic perspective and will support equitable workforce participation. Continuing supports for struggling Canadians are welcome.

Canada will continue to lack the productivity growth needed to drive economic recovery and competitiveness. The budget underinvests in key areas that could drive emissions down and competitiveness up right now, such as carbon capture. It is nearly silent on Canada’s energy sector; it biases green hydrogen at the expense of blue; and it misses an opportunity for Canada to be an agri-food global leader. This budget will lead to challenged regions in Canada that have high amounts of activity in the resource sector,” says Legge.

Priorities for Albertans

In advance of the budget, the Council outlined five key priorities Albertans and Alberta businesses wanted to see reflected in the budget, including climate-related stimulus spending, improving long-term business investment, improving access to childcare, developing a challenge-driven innovation strategy, and creating a pathway to fiscal balance.

Here is how the budget stacked up:

Environment: Climate-related stimulus spending that focuses on Alberta’s unique emissions profile

Situation: The federal government remains committed to its climate goals—seeking to reduce emissions now by 36% by 2030 and net-zero by 2050. Achieving these will require speed and scale, and the opportunity to make significant progress lies within Alberta.

Result: A Missed Opportunity

  • This budget states that climate and environment are critical priorities, but for a budget that spends hugely in nearly every area of the Canadian economy and society, it comes up woefully short on the approach necessary to enable Canada’s industrial and resource sectors to reach their emissions reduction potential.
  • Investment in carbon capture, utilization and storage (CCUS), one of the most promising technologies that directly stops carbon from being emitted into the atmosphere, today is at about only one-tenth of the level necessary. Key opportunities for existing industries to reduce emissions are excluded, as well there is no mention, and in fact intentional disregard for blue hydrogen, a zero emissions fuel where the carbon from production is sequestered.
  • Indications of supportive tax credits—such as a Canadian version of the American 45Q—are positive but many details remain undetermined, including whether it be as competitive as the American version.

Jobs: A plan to reverse Canada’s trend on long-term business investment

Situation: For years, long-term business investment in Canada has been on the decline, which has had broader impacts on the quality of life and incomes of Canadians. In order to improve these outcomes, we need to reverse this trend. We were looking for the budget to address Canada’s lab regulatory environment and develop a business environment that is robust, dynamic, and efficient.

Result: Lacking

  • While the budget was long on stimulus spending in the near term on important programs for skills development youth and hiring, it did not provide a sufficient long-term productivity and growth agenda.
  • The ultimate path to recovery is vaccines and a productive economy.
  • In the near term, this means aggressively addressing the pandemic. In fact, if hard-hit industries like tourism and hospitality could fully reopen and return, Canada could instantly exceed pre-pandemic employment levels. (138% of the remaining jobs deficit could be closed by helping these industries return to their previous levels.)
  • In the longer term, it requires creating the most competitive and attractive policy framework for business and investment.

People: A plan to improve access to childcare

Situation: COVID has made the need for affordable and accessible childcare very clear—it is a fundamental component to enabling more Canadians to participate in the workforce and support the broad stability and growth of the economy. We wanted to see some meaningful action from the federal government to improve childcare access and affordability across Canada.

Result: Positive

  • The significant investments in childcare and early learning—$30 billion over 5 years in childcare and $8.3 billion for early learning—are positive and welcome from a social and economic perspective. These measures are a meaningful step forward to support working parents, improve equitable workforce participation, and boost overall economic stability and growth.
  • Over the short term, this will reduce fees by 50% 2022 and reduce fees to $10/day by 2025. We will be looking forward to further details on this plan.

Nation of Innovation: A challenge-driven innovation strategy for Canada

Situation: Addressing Canada’s productivity challenge—which stems from our poor track record in commercializing and scaling our good ideas and innovations—is essential to our recovery from the COVID recession, unlock our potential, and improve quality of life for all Canadians for generations. We were looking for bold investments in programs and independent institutions that can help businesses test, pilot, and commercialize innovative ideas.

Result: Positive

  • Significant positive investments were announced and made, particularly into the Strategic Innovation Fund, supporting innovation especially in green tech, expanding IRAP funding, reintroducing the Venture Capital Catalyst Initiative, and a Pan Canadian AI Strategy.
  • Funding to support SME’s to accelerate digital and online adoption is important, especially as the pandemic has increased adoption of e-commerce and other digital aspects of business.
  • Modest funding of $46.9m over 2 years to connect post-secondary and polytechnic institutes to businesses via National Sciences and Engineering Research Council’s College and Community Innovation Program will provide better connections for scaling.

Fiscal Pathway: A fiscal anchor and a credible plan to return to sustainable spending levels

Situation: Supporting the people and businesses of Canada through COVID required an extraordinary level of government support, which we will continue to need as we recover. However, as the vaccination roll out continues and more forward-looking indicators—employment, business investment, sales outlooks—improve, we are looking for the federal government to develop a plan to constrain future spending, establish a firmer fiscal footing, and begin to address the debt burden,

Result: Lacking

  • There was very little in the budget regarding fiscal anchors or even “fiscal guardrails” to contain future spending growth.
  • The budget referred back to the government’s Fall Economic Statement which introduced a number of important labour market indicators that it would use as “fiscal guardrails” to assess the impact of its policy measures. However, the government makes no connection—explicit or otherwise—between these indicators and fiscal performance. There is no sense of whether or how they will guide spending decisions.  
  • All told, the budget projects a deficit of $154.7 billion in 2021/22, falling to $30.7 billion by 2025/26. At that point, the deficit would be equivalent to 1.1% of GDP. Outside of the pandemic and Financial Crisis, this would still be the largest federal deficit since the mid-1990s.
  • More concerning still, by 2024/25, Canada’s debt servicing costs will exceed its projected deficit. In other words, the government will need to borrow money just to pay the interest on its existing debt.

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