In its budget tabled on Tuesday, the Liberal government is eagerly awaited in the field of energy transition, echoing the substance Inflation Reduction Act (IRA), adopted in the United States. Will he have the means to fulfill his ambitions?
But he still has to have the ambition, some will say. Passing through Quebec on Wednesday, the Minister of Finance, Chrystia Freeland, was questioned about Canada’s real commitment to energy transition. “We made commitments and we are going to do what we promised, but I also mean concerning our natural resources. It is also important to understand that today the world needs Canada’s natural resources, ”she replied, according to comments collected by The Canadian Press. She also spoke of the “great challenge our European allies faced this winter”, depriving themselves of Russian natural gas. It is “very important for us to invest in the green transition, but we also have a responsibility to help our allies”.
This parenthesis being closed, Ottawa’s budget agenda is rather full. Targeted measures to fight inflation, increase in military spending, extension of the Canadian Dental Benefit, extension of the GST refund introduced last year, extension of the supplement to the Canadian Housing Benefit, national drug insurance plan… The menu is extensive. It is inspired by the 27 commitments included in the agreement between the Liberal Party of Canada and the New Democratic Party, of which several other elements of this agreement should in theory see the light of day in 2023, recalled last week the colleague Boris Proulx.
However, everything must be put in the context that “our ability to spend is not infinite”, admitted Mme Freeland. In his reading of the state of federal public finances published on March 2, the Parliamentary Budget Officer (PBO) measured that, assuming no new measures, the budget deficit will fall from $36.5 billion at the end of the current fiscal year to 43.1 billion in 2023-2024, falling to 8.7 billion in 2027-2028. The debt-to-GDP ratio will drop from 41.8% to 42.2% in 2023-2024. If it is to return to 38.1% in 2027-2028, he predicts, the ratio will still remain higher than that of 31.2% reached in 2019-2020, before the pandemic. As for debt service, and again assuming no new measures, the ratio will peak at 11.5% of tax revenue in 2023-2024, then drop to 10.3% in 2027-2028, but maintain well above its low level of 8.3% in 2018-2019.
These projections face a significant risk, namely that of a greater economic slowdown caused in particular by an escalation in the war against Ukraine and excessive monetary tightening by the main central banks, underlines the PBO.
This government, which has accustomed us to spending lavishly, will therefore have to switch from champagne to beer this time, to use the allegory of the economists of the Mouvement Desjardins.
But the IRA is added to the equation, and Ottawa is urged to echo it. The envelope includes 370 billion US dollars and provides strong financial incentives for investments in technologies aimed at reducing greenhouse gas emissions. And which will not be without exerting a power of attraction on investments in low-carbon assets. In response, “the Government of Canada introduced modest new measures to support the energy transition in its 2022 fall economic statement and promised to include others in the 2023 budget,” the Movement economists said. Gardens.
In a survey conducted by KPMG Canada among 505 Canadian companies, the federal government is reminded of the announcement of numerous tax measures in recent budgets that are still pending. These include incentives for clean technologies, carbon capture, use and storage, and clean hydrogen energy. Businesses want the government to follow suit in the United States by investing in tax relief so they can compete in the green economy. In other words, use the tax system effectively to boost productivity and support decarbonization and clean technology. And support funding to develop made-in-Canada, affordable climate technologies.
Another deficit: rental housing
In the process, and with a rather welcoming government in terms of immigration, Ottawa is facing another major deficit, that of rental housing, wrote economists from the Royal Bank last week.
Last year, the number of rental properties in Canada grew at its fastest pace since 2014. Nevertheless, vacancy rates plunged to their lowest point in 21 years, at just 1.9% ( far from a so-called optimal rate of 3%). The total decline of 120 basis points in just 12 months “marks the largest annual decline in over 30 years. Fierce competition for housing has also resulted in the strongest annual increase in rent growth on record.”
With Canada’s immigration targets set at record highs and housing affordability remaining tight, Royal economists predict the rental housing deficit could top the 120,000 mark by 2026, a fourfold increase. the current level.