Deputy Prime Minister and Minister of Finance, Chrystia Freeland, tabled the federal Fall Economic Statement in the House of Commons.
In the statement, the government recognizes with increased inflation due to persistent global supply chain issues because of the COVID-19 pandemic and the war in Ukraine, the Bank of Canada is aggressively raising interest rates that will likely result in a slow down in the Canadian economy next year. However, that increased inflation rate, largely due to high commodity prices, has also resulted in a cash infusion for federal coffers that wasn’t predicted in the spring budget and has dramatically reduced the projected deficit. In the last budget, the government pledged to reduce the deficit to 2 per cent of GDP, but now projects it will be 1.3 per cent this year, which coupled with the strongest growth in the G7, means Canada’s economy will return to better than pre-pandemic levels.
With the widely projected global economic slowdown looming, the federal government maintains Canada is also well-positioned to weather the storm with the lowest debt to GDP ratio and lowest deficit amongst its peers and a low unemployment rate, at least by historic terms. The Statement tries to balance the need for lower spending to not exacerbate inflation, with outlining some previously announced targeted programs, such as the doubling of the GST credit for six months, the Canada Dental Benefit for children under 12 who don’t already have coverage, and a top-up of the Canada Housing Benefit. The Statement also features new targeted spending measures, including:
- Investment Tax Credit for Clean Technologies—In response to the Inflation Reduction Act in the United States, it is a refundable tax credit equal to 30 per cent of capital costs of investments in:
- Electricity Generation Systems, such as solar photovoltaic, small modular nuclear reactors, concentrated solar, wind and water projects;
- Stationary Electricity Storage Systems that do not use fossil fuels in their operation;
- Low-Carbon Heat Equipment, including active solar heating, air-source heat pumps and ground-source heat pumps;
- Industrial zero-emission vehicles and related charging or refueling equipment; and
- To incentivise companies to create jobs, employers will be eligible to a 20 to 30 per cent tax credit, dependant on adhering to certain conditions.
- Canada Growth Fund— Although announced in the past, the Economic Statement outlines the launch of the Canada Growth Fund by the end of this year, designed to attract private capital in building a sustainable Canadian economy. The goals of the Fund are to:
- Reduce emissions and achieve Canada’s climate targets;
- Accelerate the deployment of key technologies such as low-carbon hydrogen and CCUS;
- Encourage companies to scale-up to create jobs, drive productivity and clean growth, and encourage retention of intellectual property in Canada; and
- Capitalize on Canada’s abundance of natural resources and strengthen critical supply chains.
- Investment Tax Credit for Clean Hydrogen—In the coming weeks, the government will launch a consultation on how best to implement an investment tax credit for hydrogen projects based on their lifecycle carbon intensity. The lowest carbon intensity tier that meets all eligibility requirements is proposed to receive an investment tax credit of at least 40 per cent.
- Investing in Skills for a Net-Zero Economy—An investment of $250 million over 5 years to create a Sustainable Jobs Training Centre, a sustainable jobs stream under the Union Training and Innovation Program, and a Sustainable Jobs Secretariat. There is an additional $60 million over three years set aside to create a rapid response fund for workers.
The government also announced they would levy a 2 per cent tax on the net value of all types of corporate share buy-backs to help pay for some of the above measures and encourage companies to invest more in Canada. Additional items of note include:
- Interest free student loans;
- $4 billion over six years for a top-up to the Canada Workers Benefit to benefit three million workers;
- $802 million over three years for a youth employment and skills strategy;
- Lowering credit card transaction fees for small businesses;
- Tax-free first home savings accounts;
- Doubling the first-time home buyers’ tax credit to $10,000; and
- Launching consultations on digital currencies, income reporting and tax fairness for digital platforms, and making large and multinational companies pay their fair share of tax, possibly by limiting “excessive interest deductions”.
Overall, the federal government is recognizing Canada faces some economic headwinds and needs to be more prudent in its spending while providing some targeted support where it is needed from an affordability and competitiveness perspective.
For more information and insights about what these developments mean for Canada’s political landscape, please contact:
Brian Gilbertson – Senior Strategy Advisor, Ottawa
To learn more about Prairie Sky Strategy, please visit our website.