The federal government presented a budget yesterday that outlined its top priorities for the coming year, including the environment, healthcare, and affordability. The implementation of the Canadian Dental Care Plan, which will cost $13 billion up front and $4.4 billion over time, is the most notable example of how the Confidence and Supply Agreement substantially altered the budget.
Securing funds for all provinces and territories with the exception of Quebec and the territories is a big accomplishment for the federal government, even though much of the healthcare expenditure was already confirmed during the First Ministers’ Meeting in February. The steps to increase affordability, like as cracking down on “junk fees” and instituting a GST rebate known as a grocery rebate, are meant to help Canadians who are suffering from inflation.
The budget, which put a strong emphasis on clean tech manufacturing, clean electricity, and hydrogen, demonstrated the government’s dedication to the environment and the transition of the economy into one that is more environmentally friendly. To retain investor trust and promote capital investment in Canada, new investment tax benefits and updated programmes have been introduced.
• The Canada Health Transfer will receive a $198.3 billion investment, with $46.2 billion in net new funding for provinces and territories. The investment includes $2 billion for pediatric hospitals and emergency and operating rooms, $2 billion for Indigenous health, $1.7 billion for wage increases for personal support workers, and $350 million for the Territorial Health Investment Fund.
• The Canadian Dental Care Plan will receive a $13 billion investment over five years, including $4.4 billion ongoing. This plan includes $250 million for the Oral Health Access Fund and $23.1 million for Statistics Canada.
• A one-time $2.5 billion Grocery Rebate will provide targeted inflation relief for 11 million low-income Canadians.
• Visa and MasterCard have committed to lowering credit card transaction fees for small businesses by up to 27%, saving them approximately $1 billion over five years.
• The Canada Student Grant will increase by 40%, providing up to $4,200 to full-time students.
• The maximum criminal interest rate will be reduced from 47% to 35% APR, and a consultation will be launched to explore the possibility of further reducing the rate.
• The Tax-Free First Home Savings Account will be available starting April 1, 2023.
• The government will work with regulatory agencies, provinces, and territories to reduce junk fees, such as telecom roaming charges, event and concert fees, excessive baggage fees, and unjustified shipping and freight fees.
• The government will enable two million more Canadians to participate in the File My Return program by 2025 and pilot a new automatic tax filing service to support vulnerable Canadians in accessing government benefits.
Clean Energy Transformation:
• The government will introduce a 15% Investment Tax Credit (ITC) for eligible investments in non-emitting electricity generation systems, stationary electricity storage systems, and equipment for the transmission of electricity between provinces and territories.
• The government will introduce an ITC ranging from 15-40% for eligible project costs, with the highest level of support going to the cleanest sources of hydrogen.
• A 30% clean technology investment tax credit will be introduced to support investments in machinery and equipment used to manufacture or process key clean technologies, extract or recycle critical minerals, manufacture renewable or nuclear energy equipment, process or recycle nuclear fuels and heavy water, manufacture grid-scale electrical energy storage equipment, and manufacture zero-emission vehicles and upstream battery components.
• The government has earmarked approximately $520 million over five years for Carbon Capture, Utilization and Storage (CCUS) projects and will release a legislative proposal for consultation in the coming months.
• The Canada Infrastructure Bank will invest $10 billion in Clean Power and $10 billion in Green Infrastructure projects from existing resources.
• The government will spend $3 billion over 13 years to support clean energy projects, recapitalize funding for the Smart Renewables and Electrification Pathways Program, renew the Smart Grid program, and create new investments in science-based activities to help capitalize on Canada’s offshore wind potential.
• The Public Sector Pension Investments Board (PSP Investments) will manage the assets of the Canada Growth Fund, which will include Carbon Contracts for Difference, to attract private capital to invest in the clean economy.
• The Strategic Innovation Fund will receive $500 million over 10 years to attract business investment and the development of clean technologies, and the government will engage with the biofuel industry to explore opportunities to promote its growth.
• To support small business owners looking to exit their ownership, the government will introduce tax changes that will create Employee Ownership Trusts.
Other Significant Announcements:
• The Canadian Space Agency will receive $1.1 billion over 14 years starting in 2023-24 to support Canada’s participation in the International Space Station until 2030.
It is a difficult time to announce the Canadian budget for 2023. The pandemic is still hurting the economy, and geopolitical unrest is raising worries about supply lines around the world. In addition, there are issues with affordability and rising costs for Canadian consumers and enterprises. The global economy is transitioning to a net-zero economy, which presents long-standing growth and competitiveness issues for the Canadian economy. Slowing economic growth and rising interest rates are causing new fiscal challenges. It is currently challenging to be a fiscal policymaker due to all of these considerations.
Despite repeated calls for fiscal prudence from Finance Minister Freeland, total programmed spending has risen by $20 billion since Budget 2022, leading to a $40.1 billion deficit. The government will need to take proactive steps to manage the narrative surrounding rising spending, with healthcare and initiatives to protect Canadians who are most at risk from inflation being the main political messages the government will emphasise in the upcoming weeks.