The federal government has been telegraphing for weeks that Canada’s economic outlook has darkened. Ottawa’s economic update confirmed that the country’s economy is in “a period of anemic growth.” The government is therefore reducing the pace of its spending, to promise only very targeted aid. And he dips a little into his income, inflated by inflation, to encourage medium-term investment in clean energy.
The restrained budget thus allows Ottawa to reduce its deficit and to foresee for the first time a return to a balanced budget in five years. If his more pessimistic scenario does not materialize.
Global economic uncertainty and the “pandemic-induced recession” are tainting Deputy Prime Minister and Finance Minister Chrystia Freeland’s latest economic statement. To take this into account, his document therefore presents two scenarios of budgetary projections.
The scenario favored by the Ministry of Finance foresees a deficit lower than expected this year, of 36.4 billion dollars (against 52.8 billion forecast in the last budget of April). The deficit would reach $3.4 billion in 2026-2027 (against $8.4 billion in the budget) and the federal government’s coffers could return to a balanced budget the following year with a projected surplus of $4.5 billion.
The economic update, however, also provides for a second scenario: a deficit of 49 billion this year and which would still amount to 8.3 billion dollars in five years. A more pronounced economic slowdown would rule out the prospect of a return to balanced budgets. A senior official assured that the first scenario remained the one favored by the Ministry of Finance. But that the second hypothesis is included in the budget statement testifies to the risks of an economic downturn.
Inflation will likely continue to hover above 2% through the third quarter of 2023, only to return to that threshold in 2024, the finance ministry predicts. Growth in the gross domestic product will therefore be slowed down to just 0.7% next year.
help for workers
For the current year, inflation will have allowed revenues to be higher than forecast, by 40 billion (rather than the 15.4 billion forecast in the budget). Those of next year would be 33.8 billion (against 12.9 billion forecast).
Minister Freeland is drawing on it to provide $16 billion in new investments over these two years. “Now is not the time, in the global context, to show off. This is the time to favor stability, ”summarized a senior official, during the closed session organized for the media.
To help low-income workers, Justin Trudeau’s government will therefore proactively pay the Workers’ Benefit to those who qualify, through three “automatic advance payments” starting in July 2023. Some three million Canadians, among the lowest paid, will benefit from the measure, amounting to 4 billion over six years, rather than waiting for their tax return to take advantage of the payment to which they are entitled.
Students will see the interest on the federal portion of their student loans permanently eliminated starting next April. Quebec, which administers its own loan and bursary program, will be entitled to compensation if it also cancels its interest on these student debts, promises the federal government.
Ottawa is also providing $802 million over three years for internships and summer internships through three existing programs.
And $250 million over five years to create a Sustainable Jobs Training Centre, add a sustainable jobs component to the Union Training and Innovation Program, and a Sustainable Jobs Secretariat to inform workers and employers about federal programs and funding available to them.
These measures are in addition to the enhancement of the GST credit (doubled for six months by the government), as well as the addition of a one-time $500 to the Canada Housing Benefit Supplement and the Canada Dental Benefit children, both under consideration in Parliament.
Encourage green investments
A large part of the new spending will be through two new tax credits targeting investment in clean technologies (electricity generation, heating equipment, zero-emission industrial vehicles) and clean hydrogen.
Both will be accompanied, for the first time, by a requirement to respect labor standards. To qualify for the maximum rate (30% for an investment in clean technologies, 40% for those in the production of clean hydrogen), companies will have to offer wages deemed adequate by Ottawa and reserve a portion of their payroll for apprentices. . In the United States, similar tax credits require, for example, that the salary be equivalent to the median salary of the industry concerned.
Ottawa will devote $6.7 billion over five years to the first tax credit, which will be offered from next year until 2035. The second must still be the subject of consultations, to come into force when the presentation of the 2023 budget, and is not yet costed.
The Quebec government, which would like to see the construction by Hydro-Quebec of new electric dams, can already give up on the investment tax credit for clean technologies. The measure aims to “support the development of smaller systems”, we explained behind closed doors, and not to contribute to the financing of large projects such as those mentioned by François Legault.
These measures to encourage investment are intended to try to counterbalance the Inflation Reduction Act (IRA), adopted this summer in the United States. A “ game changer for climate transition and for industrial reconstruction in North America” which Canada must absolutely take into account, explained the senior official of the Ministry of Finance.
Boost growth
To encourage large companies to invest in the country – and replicate again the American IRA – Ottawa also intends to introduce a new tax of 2% on the redemption of shares by these companies. The government hopes to discourage companies from rewarding their shareholders in this way and instead reinvest their profits in the company with a storefront in Canada. However, details will not be revealed until next spring’s budget, to come into force in January 2024.
The federal government finally promises to reduce the costs of credit card transactions for small businesses. Consultations will be conducted for this purpose. But if the industry does not come to an agreement “over the next few months”, the government promises to move forward with legislation as early as next year.
with Clémence Pavic and Marco Bélair-Cirino