With inflation already high and the pact between the Liberals and New Democrats announcing major new spending, there were many fears that Minister Freeland would table a very spendthrift budget. For several weeks, the banks, the business community and many economists have warned the government against spending temptations and have advocated more budgetary rigor.
Posted yesterday at 12:00 p.m.
With new measures amounting to nearly $60 billion over six years, this budget could add fuel to the inflationary fire that has been burning in Canada (as elsewhere) for months. But beyond the scope of the expenditure, it must be recognized that the majority of the measures are well targeted and target the right priorities. Rather than sending out checks all over the place (which stimulates consumption and adds inflationary pressures), the majority of measures attempt to address the issues that limit production and dampen Canada’s economic potential (which aims to increase the supply and mitigate inflationary pressures).
But the great novelty of the budget is that the Liberals are laying the foundations for a renewal of their economic discourse and clarifying their economic vision. One of the shadow architects of this new plan by Finance Minister Chrystia Freeland is clearly Michael Sabia, Deputy Minister of Finance and former CEO of the Caisse de depot et placement du Québec.
“High uncertainty, the global reorganization of supply chains and the energy transition will mark the major macroeconomic trends of the next decade,” said a senior official during the closed session. In this context, how will Canada, whose economic growth is heavily fueled by hydrocarbons, position itself? Will it be richer or poorer once the global energy transition has taken place? These are the fundamental principles on which the economic measures of the Liberal budget are based.
The gap is widening
Unlike the Liberal budgets that glorified government action and performance, this one offers a refreshing dose of realism by clearly naming Canada’s economic backwardness.
Despite the increases in profits of many companies during the pandemic, private investment has been anemic, while it has grown significantly in the United States.
Not only has this widened the already significant gap between us, but it also reduces the production potential of our economy for the coming years.
Same picture for productivity and research and development spending. For growth in real GDP per capita, forecasts by the Organization for Economic Co-operation and Development (OECD) even place Canada in last place among G7 and OECD countries for the next decade.
Similarly, the budget documents point out that Canada is one of the countries with the highest per capita greenhouse gas (GHG) emissions in the world, mainly because of the oil industry. . The efforts required to meet the targets of the Federal Emissions Reduction Plan will be colossal and very costly.
Reconciling economy and environment
The Liberals’ bet is to try to kill two birds with one stone to solve these two problems simultaneously. The intention is good, but the challenge is daunting.
Both in tone and in the choice of measures, this budget emphasizes a desire to transform the Canadian economy by using public funds to direct private funds towards local procurement and the green transition. Thus, the creation of the Canada Growth Fund, with an initial capitalization of $15 billion over five years, and a new Canadian Innovation and Investment Agency are announced. The government is also counting on the development of critical mineral projects, which are at the heart of several industries such as electric vehicles, aerospace and health care.
Several other measures, such as the investment tax credit for carbon capture, use and storage, the tax credit for clean technologies and support for renewable energy projects are also building on advances technologies and private investment to finance the energy transition.
If the vision is there, it must be able to be transformed into action. Beyond the good intentions, it is still too early to assess the effectiveness of the new tools proposed. Information on the terms of application and on the details of the implementation of several key measures will come later. It will be necessary to define clear targets for these investments, ensure effective accountability, avoid red tape and excessive interventionism.
And since the devil is in the details, it will be necessary to be patient before knowing if the government will succeed in its bet or if its noble intentions will result in a sword stroke in the water. It is therefore postponed for the real test of the liberal strategy.