A TACTIX Commentary – Budget 2022A TACTIX Commentary – Budget 2022
TACTIX Budget 2022 brings you the latest news and analysis from TACTIX’ team of government relations and public affairs specialists on the 2022 Canadian federal budget.
Minority Ways and Means – You Bring the Supply, We’ll Provide the Confidence
If Prime Minister Justin Trudeau tried to borrow from Wilfrid Laurier’s ‘sunny ways’ as a guiding light in his first term, by this third term in office he is looking to the minority ways of Lester Pearson and Trudeau the Elder to find the means to make the 44th Parliament work.
Pearson famously sat in the Prime Minister’s chair in exclusively minority governments in the 1960s, all the while getting parliamentary approval on budgets that included hallmark programs such as a national pension plan and steps to universal health care. His minority government also pushed the National Flag of Canada Act through a hung Parliament, establishing the red maple leaf as the symbol by which Canadian travelers worldwide can be identified.
An active minority government establishing the core building blocks of Canada’s social safety net more than half a century ago set the perfect example for NDP leader Jagmeet Singh’s aspirations when he agreed to a supply and confidence agreement with PM Justin Trudeau that would offer incremental dental and pharmacare in exchange for confidence in the Liberal government.
Neither Pierre Trudeau nor Lester Pearson had a formal supply-and-confidence agreement with an opposition party. In fact, Prime Minister Pearson had no agreement in place to accomplish what he did, using brokerage politics to secure his legacy. However, in 1972 the elder Trudeau got the support of the NDP in exchange for agreeing to their demand to, among other things, establish Petro-Canada as a crown corporation.
Although the supply-and-confidence agreement struck by Prime Minister Trudeau and Jagmeet Singh on March 22 will be tested for the first time, we are confident that Finance Minister Chrystia Freeland’s second budget will survive this minority parliament.
However, thanks to that arrangement with the NDP, and the added complication brought on by Russia’s invasion of Ukraine, this budget is not only focused on the post-pandemic ‘green economic recovery’ that the Liberals had no doubt envisioned. Instead, it seeks the balance of a three-legged stool.
And as you might guess, we have used the word balance metaphorically. This is once again a budget with no balance in sight.
A Fiscal Anchor to Keep the Ship of State Afloat
The 2021-22 deficit is projected to sit at $113.8 billion, which is less than the $144.5B estimated in the last fiscal update. The 2022-23 deficit is estimated at $52.8 billion and decreasing each year to $8.4 billion by 2026-27.
Nevertheless, Minister Freeland has attempted to assuage the business community’s genuine fiscal fears, stating, “we are absolutely determined that our debt-to-GDP ratio must continue to decline. Our pandemic deficits are and must continue to be reduced. The extraordinary debts we incurred to keep Canadians safe and solvent must be paid down. This is our fiscal anchor—a line we shall not cross, and that will ensure that our finances remain sustainable so long as it remains unbreached.”
Stool Leg #1: Post-Pandemic Recovery and Growth, Or, the Part of Budget 2022 the Liberals Always Intended
Housing affordability and celebrating childcare agreements with all provinces and territories figure large in this budget, which comes as no surprise. From an industry perspective, however, there are also key elements of interest hanging in the window.
Budget 2022 makes several references to improving productivity, a long-standing concern that has plagued Canada’s economic growth for decades. In fact, the budget notes that labour productivity in Canada has slowed from approximately 2.7 percent in the 1960s and 1970s to less than 1 percent today. Canada’s productivity problem is linked to the country lagging behind other advanced economies in investing in and adopting new and innovative technologies. The contrast is particularly stark when Canada’s investment in information and communications technology equipment and in research and investment is compared to that of the United States; Canadian investment is only half of U.S. levels.
The budget takes direct aim at this nagging issue with several investments in innovative technology programs.
Not surprisingly, Canada’s Low Carbon Economy Fund will live to see another day, with an injection of $2.2 billion over seven years to expand and extend it. The Strategic Innovation Fund will also see up to $1 billion more over six years, but not starting until in 2024-25. Combined with $500 million drawn from existing program funding, this is said to provide $1.5 billion in targeted support towards critical minerals projects, with prioritization given to manufacturing, processing, and recycling applications.
There is also new money for the existing superclusters initiative, although this budget appears to have rebranded them as “Global Innovation Clusters”. What’s more, the $750 million in new funding for them over six years is being done on a competitive basis, with the five clusters having to duke it out for a share of the money based on government policy priorities.
Beyond resupplying older programs, the economic growth tool kit for this government continues to expand as they hedge their bets on technological innovation. New to this budget, Finance Canada will engage with experts to establish an investment tax credit of up to 30 percent, focused on net-zero technologies, battery storage solutions, and clean hydrogen. The design details of the investment tax credit will be provided in the 2022 fall economic and fiscal update.
Canada is also launching a “Canada Growth Fund” to leverage private sector investment to help meet important national economic policy goals. These include reducing GHG emissions, investing in the growth of low-carbon industries and new technologies and supporting the restructuring of critical supply chains that were so badly fractured by the COVID-19 pandemic. This fund will be initially capitalized at $15 billion over the next five years and will target three dollars of private capital for every one dollar that the Fund invests.
Despite these budgetary initiatives, it will take several years before it can be said that Canada has wrestled its productivity problem to the ground.
Stool Leg #2: Liberals to Singh for their Supper on Bank Taxes, Dental, and Pharmacare
In what will at least in part be music to the NDP’s ears, Budget 2022 proposes to introduce some of the items on which they and the Liberal government have a shared interest in or which, in fact, the NDP pushed for in the supply-and-confidence agreement with the government.
It is telling that Chapter 1 of the 2022 budget is entitled “Making Housing More Affordable”. Addressing the growing crisis of affordable housing is a key plank of the Liberal-NDP supply-and-confidence agreement. If nothing else, leading off with this issue is a major signal to the NDP that the Liberal government intends to live up to its end of the bargain (at least for this budget cycle, we overheard some cynics saying).
Meeting another key NDP demand, $5.3 billion over five years, starting in 2022-23, and $1.7 billion ongoing, will be directed to incrementally establishing a national dental care program. This will start with under 12-year-olds in 2022, and then expand to under 18-year-olds, seniors, and persons living with a disability in 2023, with full implementation by 2025. The program would be restricted to families with an income of less than $90,000 annually, with no co-pays for those under $70,000 annually in income.
There is also a commitment to continue “ongoing” work towards a universal national pharmacare program. This will include tabling a Canada Pharmacare bill and working to have it passed by the end of 2023. Following that step, the Canadian Drug Agency will develop a national formulary of essential medicines and a bulk purchasing plan.
Taxing Canada’s largest banks is always a popular hit with many Canadians. Moreover, it fulfils a promise the Liberals made in their 2021 election platform as well as in the supply-and-confidence agreement with the NDP.
To that end, the budget proposes a temporary Canada Recovery Dividend, under which banking and life insurers’ groups will pay a one-time 15 percent tax on taxable income above $1 billion for the 2021 tax year. In addition, the budget proposes to permanently increase the corporate income tax rate by 1.5 percentage points on the taxable income of banking and life insurance groups above $100 million, such that the overall federal corporate income tax rate above this income threshold will increase from 15 percent to 16.5 percent.
Stool Leg #3: Canada’s Defence is Not Exactly ‘Putin on the Ritz’
Canada currently spends 1.39 percent of GDP on the military and had already projected to increase to 1.5 percent by 2024, based on the Trudeau government’s Strong, Secure, and Engaged defence policy. However, in light of the invasion of Ukraine, Defence Minister Anita Anand publicly stated that she was personally bringing forward three options which would see Canada either exceed the 2 percent of GDP target established by NATO, hit the 2 per cent level, or continue below the 2 percent level. The history of the Department of Finance’s position on defence spending would suggest great anxiety for any over 2 percent option.
While underfunding of the military has an unfortunately long, multi-partisan history in Canada, the invasion of Ukraine has jolted the government’s understanding of Russian President Vladimir Putin’s objectives to destabilize democracies and restore the Russian empire of days gone by. The need for better defence preparedness has become clear. Not in recent memory have we seen two such strong and capable ministers at Finance and Defence share common cause.
And to the question of how much? We now have our answer.
It was a bluff.
The increase in defence spending anticipated did not really show up. The resulting score from the cross-town budget skirmish between the Department of Finance and Defence HQ was a decisive win for Finance. Yet again, a much-ballyhooed claim in the days leading up to today’s budget that defence spending would be increased significantly – evaporated in the spring mist over the Rideau Canal.
Budget 2022 announced $6.1 billion over five years, starting in 2022-23. While this is “new money” – it won’t come close to covering the increased capital and operating budgets over the next five years due to inflationary costs. With a $1.3 billion charge for amortization (not new money) $1.4 billion to fulfill Urgent Operational Requirements (UORs) and backfill our war stocks that were given to Ukraine – DND is only left with $3.4 billion for Continental Defence/NORAD Modernization. This represents only a fraction of the costs required to modernize the defence of our northern border with Russia.
That said, the cyber investment of $875 million is good news for the Communications Security Establishment (CSE) and is not a reflection of CAF requirements. However, completely absent from the Budget: not a word on digitalization for the Canadian Armed Forces.
Budget 2022 announces a defence policy review to allow Canada to update its existing defence policy, Strong, Secure, Engaged, in support of its broader international priorities and the changed global environment. The review will focus on, amongst other things, the size and capabilities of the Canadian Armed Forces; its roles and responsibilities; and making sure it has the resources required to both keep Canadians safe and contribute to operations around the world.
The review of Canada’s defence policy will include an assessment of the equipment and technology that the Canadian Armed Forces need to fulfill their missions in a world that has fundamentally changed in the face of Russia’s invasion of Ukraine. However, the government realizes that immediate further investments are needed to bolster the capacity of the Canadian Armed Forces.
To conclude, the launch of a defence policy review, the lack of specifics, the failure to invest in Canada’s security is worrisome and falls short of expectations.
Conclusion – No Drama Here; This Budget Will Pass
Budget 2022 offered the first real test of the Liberal’s pact with the NDP. NDP leader Jagmeet Singh has already eliminated any drama that often accompanies the passage of a minority government’s budget; he has stated publicly that the Trudeau government has passed its test.
There was clearly enough substance in Minister Freeland’s budget on core issues of interest to the NDP, such as affordable housing, dental care and pharmacare, to ensure the Liberal government lives to see another day. Moreover, if the threat in recent weeks of greatly increased defence spending had given cause for concern to the NDP caucus, the reality of no very significant increase will have allayed their fears.
It bears noting that one other policy issue of importance to both parties to the supply-and-confidence agreement was highlighted in the budget. Indeed, there was a particularly moving moment in the House of Commons as Minister Freeland delivered her budget speech.
Referencing the recently signed childcare agreements with the provinces and territories, Canada’s first female Minister of Finance proudly stated, “This is women’s liberation. It will mean more women no longer need to choose between motherhood and a career. And it will make life more affordable for middle class Canadian families.”
After her first budget in 2021 raised the issue of the “she-cession”—a recession during the pandemic felt more acutely by women—this was a moment of triumph for Minister Freeland, made all the more impressive by the rapid manner in which the deals had been struck.
Looking ahead, when the House of Commons returns from its two week break on April 25, Budget 2022 will be debated for several days, followed by the introduction and eventual passage of the Budget Implementation Act.
No drama to see here folks.
Click to download our commentary: TACTIX 2022 Budget Commentary
TACTIX Budget 2022 brings you the latest news and analysis from TACTIX’ team of government relations and public affairs specialists on the 2022 Canadian federal budget.
Minority Ways and Means – You Bring the Supply, We’ll Provide the Confidence
If Prime Minister Justin Trudeau tried to borrow from Wilfrid Laurier’s ‘sunny ways’ as a guiding light in his first term, by this third term in office he is looking to the minority ways of Lester Pearson and Trudeau the Elder to find the means to make the 44th Parliament work.
Pearson famously sat in the Prime Minister’s chair in exclusively minority governments in the 1960s, all the while getting parliamentary approval on budgets that included hallmark programs such as a national pension plan and steps to universal health care. His minority government also pushed the National Flag of Canada Act through a hung Parliament, establishing the red maple leaf as the symbol by which Canadian travelers worldwide can be identified.
An active minority government establishing the core building blocks of Canada’s social safety net more than half a century ago set the perfect example for NDP leader Jagmeet Singh’s aspirations when he agreed to a supply and confidence agreement with PM Justin Trudeau that would offer incremental dental and pharmacare in exchange for confidence in the Liberal government.
Neither Pierre Trudeau nor Lester Pearson had a formal supply-and-confidence agreement with an opposition party. In fact, Prime Minister Pearson had no agreement in place to accomplish what he did, using brokerage politics to secure his legacy. However, in 1972 the elder Trudeau got the support of the NDP in exchange for agreeing to their demand to, among other things, establish Petro-Canada as a crown corporation.
Although the supply-and-confidence agreement struck by Prime Minister Trudeau and Jagmeet Singh on March 22 will be tested for the first time, we are confident that Finance Minister Chrystia Freeland’s second budget will survive this minority parliament.
However, thanks to that arrangement with the NDP, and the added complication brought on by Russia’s invasion of Ukraine, this budget is not only focused on the post-pandemic ‘green economic recovery’ that the Liberals had no doubt envisioned. Instead, it seeks the balance of a three-legged stool.
And as you might guess, we have used the word balance metaphorically. This is once again a budget with no balance in sight.
A Fiscal Anchor to Keep the Ship of State Afloat
The 2021-22 deficit is projected to sit at $113.8 billion, which is less than the $144.5B estimated in the last fiscal update. The 2022-23 deficit is estimated at $52.8 billion and decreasing each year to $8.4 billion by 2026-27.
Nevertheless, Minister Freeland has attempted to assuage the business community’s genuine fiscal fears, stating, “we are absolutely determined that our debt-to-GDP ratio must continue to decline. Our pandemic deficits are and must continue to be reduced. The extraordinary debts we incurred to keep Canadians safe and solvent must be paid down. This is our fiscal anchor—a line we shall not cross, and that will ensure that our finances remain sustainable so long as it remains unbreached.”
Stool Leg #1: Post-Pandemic Recovery and Growth, Or, the Part of Budget 2022 the Liberals Always Intended
Housing affordability and celebrating childcare agreements with all provinces and territories figure large in this budget, which comes as no surprise. From an industry perspective, however, there are also key elements of interest hanging in the window.
Budget 2022 makes several references to improving productivity, a long-standing concern that has plagued Canada’s economic growth for decades. In fact, the budget notes that labour productivity in Canada has slowed from approximately 2.7 percent in the 1960s and 1970s to less than 1 percent today. Canada’s productivity problem is linked to the country lagging behind other advanced economies in investing in and adopting new and innovative technologies. The contrast is particularly stark when Canada’s investment in information and communications technology equipment and in research and investment is compared to that of the United States; Canadian investment is only half of U.S. levels.
The budget takes direct aim at this nagging issue with several investments in innovative technology programs.
Not surprisingly, Canada’s Low Carbon Economy Fund will live to see another day, with an injection of $2.2 billion over seven years to expand and extend it. The Strategic Innovation Fund will also see up to $1 billion more over six years, but not starting until in 2024-25. Combined with $500 million drawn from existing program funding, this is said to provide $1.5 billion in targeted support towards critical minerals projects, with prioritization given to manufacturing, processing, and recycling applications.
There is also new money for the existing superclusters initiative, although this budget appears to have rebranded them as “Global Innovation Clusters”. What’s more, the $750 million in new funding for them over six years is being done on a competitive basis, with the five clusters having to duke it out for a share of the money based on government policy priorities.
Beyond resupplying older programs, the economic growth tool kit for this government continues to expand as they hedge their bets on technological innovation. New to this budget, Finance Canada will engage with experts to establish an investment tax credit of up to 30 percent, focused on net-zero technologies, battery storage solutions, and clean hydrogen. The design details of the investment tax credit will be provided in the 2022 fall economic and fiscal update.
Canada is also launching a “Canada Growth Fund” to leverage private sector investment to help meet important national economic policy goals. These include reducing GHG emissions, investing in the growth of low-carbon industries and new technologies and supporting the restructuring of critical supply chains that were so badly fractured by the COVID-19 pandemic. This fund will be initially capitalized at $15 billion over the next five years and will target three dollars of private capital for every one dollar that the Fund invests.
Despite these budgetary initiatives, it will take several years before it can be said that Canada has wrestled its productivity problem to the ground.
Stool Leg #2: Liberals to Singh for their Supper on Bank Taxes, Dental, and Pharmacare
In what will at least in part be music to the NDP’s ears, Budget 2022 proposes to introduce some of the items on which they and the Liberal government have a shared interest in or which, in fact, the NDP pushed for in the supply-and-confidence agreement with the government.
It is telling that Chapter 1 of the 2022 budget is entitled “Making Housing More Affordable”. Addressing the growing crisis of affordable housing is a key plank of the Liberal-NDP supply-and-confidence agreement. If nothing else, leading off with this issue is a major signal to the NDP that the Liberal government intends to live up to its end of the bargain (at least for this budget cycle, we overheard some cynics saying).
Meeting another key NDP demand, $5.3 billion over five years, starting in 2022-23, and $1.7 billion ongoing, will be directed to incrementally establishing a national dental care program. This will start with under 12-year-olds in 2022, and then expand to under 18-year-olds, seniors, and persons living with a disability in 2023, with full implementation by 2025. The program would be restricted to families with an income of less than $90,000 annually, with no co-pays for those under $70,000 annually in income.
There is also a commitment to continue “ongoing” work towards a universal national pharmacare program. This will include tabling a Canada Pharmacare bill and working to have it passed by the end of 2023. Following that step, the Canadian Drug Agency will develop a national formulary of essential medicines and a bulk purchasing plan.
Taxing Canada’s largest banks is always a popular hit with many Canadians. Moreover, it fulfils a promise the Liberals made in their 2021 election platform as well as in the supply-and-confidence agreement with the NDP.
To that end, the budget proposes a temporary Canada Recovery Dividend, under which banking and life insurers’ groups will pay a one-time 15 percent tax on taxable income above $1 billion for the 2021 tax year. In addition, the budget proposes to permanently increase the corporate income tax rate by 1.5 percentage points on the taxable income of banking and life insurance groups above $100 million, such that the overall federal corporate income tax rate above this income threshold will increase from 15 percent to 16.5 percent.
Stool Leg #3: Canada’s Defence is Not Exactly ‘Putin on the Ritz’
Canada currently spends 1.39 percent of GDP on the military and had already projected to increase to 1.5 percent by 2024, based on the Trudeau government’s Strong, Secure, and Engaged defence policy. However, in light of the invasion of Ukraine, Defence Minister Anita Anand publicly stated that she was personally bringing forward three options which would see Canada either exceed the 2 percent of GDP target established by NATO, hit the 2 per cent level, or continue below the 2 percent level. The history of the Department of Finance’s position on defence spending would suggest great anxiety for any over 2 percent option.
While underfunding of the military has an unfortunately long, multi-partisan history in Canada, the invasion of Ukraine has jolted the government’s understanding of Russian President Vladimir Putin’s objectives to destabilize democracies and restore the Russian empire of days gone by. The need for better defence preparedness has become clear. Not in recent memory have we seen two such strong and capable ministers at Finance and Defence share common cause.
And to the question of how much? We now have our answer.
It was a bluff.
The increase in defence spending anticipated did not really show up. The resulting score from the cross-town budget skirmish between the Department of Finance and Defence HQ was a decisive win for Finance. Yet again, a much-ballyhooed claim in the days leading up to today’s budget that defence spending would be increased significantly – evaporated in the spring mist over the Rideau Canal.
Budget 2022 announced $6.1 billion over five years, starting in 2022-23. While this is “new money” – it won’t come close to covering the increased capital and operating budgets over the next five years due to inflationary costs. With a $1.3 billion charge for amortization (not new money) $1.4 billion to fulfill Urgent Operational Requirements (UORs) and backfill our war stocks that were given to Ukraine – DND is only left with $3.4 billion for Continental Defence/NORAD Modernization. This represents only a fraction of the costs required to modernize the defence of our northern border with Russia.
That said, the cyber investment of $875 million is good news for the Communications Security Establishment (CSE) and is not a reflection of CAF requirements. However, completely absent from the Budget: not a word on digitalization for the Canadian Armed Forces.
Budget 2022 announces a defence policy review to allow Canada to update its existing defence policy, Strong, Secure, Engaged, in support of its broader international priorities and the changed global environment. The review will focus on, amongst other things, the size and capabilities of the Canadian Armed Forces; its roles and responsibilities; and making sure it has the resources required to both keep Canadians safe and contribute to operations around the world.
The review of Canada’s defence policy will include an assessment of the equipment and technology that the Canadian Armed Forces need to fulfill their missions in a world that has fundamentally changed in the face of Russia’s invasion of Ukraine. However, the government realizes that immediate further investments are needed to bolster the capacity of the Canadian Armed Forces.
To conclude, the launch of a defence policy review, the lack of specifics, the failure to invest in Canada’s security is worrisome and falls short of expectations.
Conclusion – No Drama Here; This Budget Will Pass
Budget 2022 offered the first real test of the Liberal’s pact with the NDP. NDP leader Jagmeet Singh has already eliminated any drama that often accompanies the passage of a minority government’s budget; he has stated publicly that the Trudeau government has passed its test.
There was clearly enough substance in Minister Freeland’s budget on core issues of interest to the NDP, such as affordable housing, dental care and pharmacare, to ensure the Liberal government lives to see another day. Moreover, if the threat in recent weeks of greatly increased defence spending had given cause for concern to the NDP caucus, the reality of no very significant increase will have allayed their fears.
It bears noting that one other policy issue of importance to both parties to the supply-and-confidence agreement was highlighted in the budget. Indeed, there was a particularly moving moment in the House of Commons as Minister Freeland delivered her budget speech.
Referencing the recently signed childcare agreements with the provinces and territories, Canada’s first female Minister of Finance proudly stated, “This is women’s liberation. It will mean more women no longer need to choose between motherhood and a career. And it will make life more affordable for middle class Canadian families.”
After her first budget in 2021 raised the issue of the “she-cession”—a recession during the pandemic felt more acutely by women—this was a moment of triumph for Minister Freeland, made all the more impressive by the rapid manner in which the deals had been struck.
Looking ahead, when the House of Commons returns from its two week break on April 25, Budget 2022 will be debated for several days, followed by the introduction and eventual passage of the Budget Implementation Act.
No drama to see here folks.
Click to download our commentary: TACTIX 2022 Budget Commentary