Insights

Based on BCA’s Pre-Budget Submission provided to the Federal government on February 8, 2023

Canada’s economy is in a state of transition. While inflation is still too high, it is encouraging that it has finally started trending downward more recently as global supply chain pressures have eased. That said, the cost of living remains a top concern for families in Alberta and across the country.

The unemployment rate is at record lows as businesses expanded hiring over 2022, which has led to widespread labour and skill shortages in many sectors of the economy, limiting future growth.

At the same time, geopolitical uncertainty, global weather conditions, and higher interest rates all remain key growth risks, while the recent collapse of Silicon Valley Bank adds additional uncertainty to global financial markets. As the world economy is expected to slow this year Canada may face a mild recession in 2023.

Against this backdrop, the federal government will table its 2023 budget tomorrow.

Last month, the Business Council of Alberta (BCA), provided a submission to the Federal government outlining our top priorities for this next budget and beyond. We believe that the federal government should prioritize policies that address competitiveness fundamentals in the short term and position Canada for economic success in the long-term. That means addressing labour shortages, making Canada a more attractive place to invest–including, but certainly not limited to, efforts to reduce emissions–and ensuring that Indigenous peoples have access to economic opportunities. Together, these priorities ensure a focus on building prosperity even as the country navigates uncertainty and transition.

Here is what we are hoping to see from Budget 2023 to make life better for Albertans and all Canadians.

1. Accelerating Canada’s economic growth agenda

The way to secure long-term prosperity for Canadians is through a competitive, productive, and sustainable economy.

Higher productivity means using less time, energy, and resources to produce a given product or service. While that concept is important at the best of times, it matters today more than ever. Productivity growth is the most effective way to address many of the challenges facing Canada today. It sustainably increases wages and living standards. It plays an important role in addressing labour shortages. It helps to control inflation. And it’s how Canada stays competitive in global markets. And all those things help boost government revenue to pay for important services for Canadians.

Unfortunately, Canada’s record on productivity is poor. Not only do we lag countries like the U.S. by a wide margin, but Canada has seen negligible productivity growth since 2017. 

To address lagging productivity, the federal government announced in Budget 2022 the creation of a Canadian Innovation and Investment Agency; as well as commitments to modernize and simplify tax support for R&D and intellectual property; create a Council of Economic Advisors; and conduct a review of the Scientific Research and Experimental Development tax incentive program. However, nearly a full year later, we are still waiting to see execution on these files. 

In addition to fulfilling prior commitments, there are two other areas where action is needed. First, Canada needs to address lagging business capital investment. Compared to peak levels in late 2014, business investment in new non-residential buildings is down 22%. Investment in machinery and equipment is down 2%. And investment in intellectual property has remained flat for the past five years.  

Second, Canada needs to address labour shortages. There are about 850,000 vacant jobs across the country and over 90,000 in Alberta. When businesses cannot find the workers they need, output suffers, and the economy grows well below its full potential.

There are two main factors driving the fact that businesses can’t find the workers they need: (1) labour force participation is falling as a growing share of Canadians enter their retirement years; and (2) a mismatch between the skills businesses are looking for and those held by unemployed Canadians.

Long-term economic growth requires that businesses have access to the workers they need when they need them. It also requires Canadians to have the skills for the jobs that are available. To achieve these goals, the federal government has taken important steps to increase immigration targets and address processing backlogs; and it has taken modest steps on training and workforce development. However, much more needs to be done.

To build a competitive, productive, and sustainable economy, we proposed the following recommendations:

• Takes steps to increase labour force participation among Canadians aged 55+, including by:
• Providing more funds to provincial targeted training programs;
• Consider how programs like CPP, OAS and GIS can be updated to reflect demographic realities; and
• Reducing the GIS clawback rate from 50% to 25%.

• Commit money to the proposed Futures Fund for regional economic diversification, with a strong commitment to develop the fund in consultation with impacted Albertans.

• Reform the Employment Insurance (EI) program to incentivize and better support individual-led training for those who are unemployed by:
• shifting its focus towards supporting individuals who use their period of unemployment to upgrade their skills; and
• making a direct financial contribution to the program, with the additional funds over and above existing employer/employee contributions being used to support individuals who undertake self-directed training and skills upgrading during the tenure of their unemployment.

• Ensure that Canada’s immigration system is responsive to economic and labour force needs by providing funding to modernize the immigration processing system to reduce backlogs and expedite the acceptance of new permanent residents into Canada.
• Providing funding to modernize the immigration processing system to reduce backlogs and expedite the acceptance of new permanent residents into Canada; and
• Significantly increase Alberta’s nominee allocations under the Provincial Nominee Program to ensure that regional differences are reflected in immigration priorities.

2. Enabling businesses to make long-term climate investments in Canada

Signed into law in August, the U.S. Inflation Reduction Act is one of the world’s most powerful pieces of climate legislation. It invests aggressively in domestic clean energy production, with US$369 billion dedicated to direct investments and tax credits.

The IRA is awash with climate ‘carrots’ and puts Canada in an uncompetitive position – playing catch-up with the U.S. when it comes to implementing climate-related policies and attracting investment in decarbonization.

The magnitude of the IRA’s financial support and the long-sought policy certainty it provides gives businesses the confidence they need to make the kind of large, transformative investments required to make progress on decarbonization. As a result, for companies looking to build a carbon capture plant or hydrogen facility, the U.S. has become the no-brainer jurisdiction for these investments.

The federal government has consistently stated that the energy transition creates significant economic opportunities for Canadians and Canadian businesses. Indeed, Canada has all the ingredients it needs to become a world leader in the development of clean energy—including low-carbon fossil fuels—and environmental technologies. However, without a strong, ambitious response to the IRA, that opportunity will be lost.

The IRA presents an opportunity for Canada to strengthen its approach to supporting climate action. We must not only make Canada as attractive as the U.S. is, but ensure Canada is the most attractive jurisdiction for investors.

With that background, we proposed the following recommendations:

• In consultation with potential investors, strengthen the CCUS ITC to be competitive with the U.S’s recently enhanced 45Q, which may include:
• increasing the tax credit rates
• pushing the timelines out for rate reductions;
• allowing use of CO2 for enhanced oil recovery to be eligible for the tax credit; and/or
• swiftly implementing a measure that guarantees the price of carbon to provide policy certainty for investors.

• Capitalize on the opportunity created by the IRA’s sourced-in-North America EV battery content requirements by:
• rapidly developing our battery mineral production and securing our share of the global market;
• injecting substantial investment in the infrastructure—roads and power—needed to operationalize remote critical mineral mines and their supply chains;
• significantly shortening lengthy permitting times for new mining projects to reduce timelines between exploration and production; and
• directing government investment to build out Canada’s midstream chemical production capacity to support an integrated supply chain.

• Move quickly to eliminate disparate incentives for wind, solar, hydrogen and other clean energy sources and technologies between Canada and the U.S. to ensure Canada continues to attract net-zero aligned investment.

3. Regulatory reform to advance major project proposals

Canada has many of the essential ingredients needed to build a prosperous, industrious, and sustainability-focused society. We have an abundance of natural resources, geographic proximity to major global markets, stable institutions, and the workforce expertise needed to attract capital and build major projects responsibly.

Despite these advantages, Canada has a growing reputation as a place where major projects cannot get built within a competitive timeframe—especially for major linear infrastructure projects.

Project review processes are long, expensive, and onerous for businesses. Moreover, in the case of projects falling under the Impact Assessment Act, businesses are being asked to spend hundreds of millions of dollars on a process subject to a political decision at the end. This alone creates profound uncertainty for businesses. The result is lost or foregone investment, often without any mitigating environmental or social benefit.

Done well, however, regulatory processes can attract business investment and encourage economic activity while protecting key environmental and social outcomes. Efficient, transparent, and predictable project approval processes help create the certainty needed to attract large investments and enhance access to capital, while also building public trust in sustainably developed infrastructure.

Canada’s economic growth and climate change mitigation goals will require tens-of-billions of dollars invested in major projects within a short timeline. Unless regulatory processes enable this investment, key government policy objectives will fall by the wayside.

The Business Council of Alberta is finalizing a report on regulatory reform in Canada, produced by a Task Force of member companies and outside experts. That report will provide recommendations to the federal government on ways to improve the speed, transparency, and predictability of Canada’s multi-faceted regulatory and approvals processes. The recommendations presented in this submission represent our broad assessment of how those processes can be improved in the short term. We will share more detailed recommendations with the federal government upon release of our final report–expected in late spring.

With that background, we have proposed several recommendations on regulatory reform:

• Ensure that project review requirements and regulators’ decision-making timelines are scaled proportionally with the size, complexity, materiality, and uniqueness of project-specific risks. Only the largest and most complex projects should need the full existing review timelines, with shorter review periods applying to simpler projects.
• Empower lead regulators to enforce defined processes and timeline service standards on agencies/departments and intervenors where they don’t already exist.
• Ensure that project review activities, information requests, and consultation requirements occur during their designated stage of regulatory review processes and under clear timelines.
• Empower lead regulators to scope and assess third-party intervenor activities and submissions alongside proponents to answer inquiries into standard or repetitive issues of concern.
• Align conditions assessments and permitting reviews with key construction windows.
• Create standards for field inspectors that limit their power to unilaterally revoke permits except in cases where safety or species are threatened.
• Remove, or at least greatly mitigate, the risk that Cabinet will reject major projects in the late stages of review.
• Align interjurisdictional review and permitting requirements to ensure that federal and provincial processes are not duplicative and add to review timelines. Whenever possible, adopt a one-process, one-review approach.
• Develop better internal review processes within government to identify the hurdles to achieving whole-of-process efficiency.

4. Creating pathways for Indigenous economic reconciliation

Canada’s vision of prosperity and opportunity for all can only be achieved when Indigenous people can fully participate in the national economy.

For many Indigenous nations, resource development is the best, and perhaps only, economic opportunity that allows them to be self-determining, improve community well-being, and address on-reserve poverty.

Many Indigenous Nations are interested in participating in major resource projects through equity positions and partnerships. However, Indigenous nations are often excluded from ownership opportunities due to the difficulty of accessing competitive capital–including barriers stemming from the Indian Act.

To create pathways for Indigenous economic reconciliation, we proposed the following recommendations:

• Enhance Indigenous partnerships on major project developments through improved capacity-building supports and access to financing. Consider using the Alberta Indigenous Opportunities Corporation (AIOC) as a model for the latter.
• Work with Indigenous communities to establish clear, transparent, and efficient engagement and participation in major project regulatory processes, including clarifying consultation obligations on all parties in the context of UNDRIP and FPIC, to better allow major projects to move forward.
• Fund capacity-building training to develop technical expertise within Indigenous community to allow Indigenous experts to advise their own leadership on major project developments and participate in project design, construction, maintenance, environmental monitoring, and other economic opportunities.