2021 Federal Budget

On April 19, 2021, the Government of Canada released its 2021 Budget, A Recovery Plan for Jobs, Growth, and Resilience with $101.4 billion in proposed investments to support economic recovery and growth. The following is a summary of highlights from the perspective of Ontario’s business community. 

Immediate Supports for Businesses and Workers

Budget 2021 includes the extension and gradual phasing out of federal government benefits such as the Canada Emergency Wage Subsidy (CEWS) and the Canada Emergency Rent Subsidy (CERS) and Lockdown Support, which provides additional support for organizations eligible for the CERS that have been subject to additional public health measures. These programs were set to expire in June and will instead be extended until September 25, 2021. Budget 2021 also introduces a new hiring credit, the Canada Recovery Hiring Program, for eligible employers to subsidize a portion of the costs employers will absorb as they reopen and hire staff. The benefit is mutually exclusive with the CEWS and will be available beginning June 6. 

OCC analysis: Given the prolonged nature of the crisis and the public health measures implemented as a result of the third wave, the OCC has called for the extension of government supports to reflect the ongoing reality of many businesses who would simply not survive without continued relief. The extensions of the CEWS and CERS, along with a previously announced extension of the Canada Emergency Business Account (CEBA), are welcome news for Ontario businesses. The introduction of a new hiring credit will also help offset some of the costs of reopening. We hope to work collaboratively with the federal government to ensure that the gradual phasing out of the supports are aligned with business needs. Similarly, as the government considers program reforms and new supports, the OCC will continue to stress the need for grants and forgivable loans for businesses that are already deeply indebted.

Child Care

Budget 2021 proposes to invest up to $30 billion over the next five years, and $8.3-billion each year after that, toward Early Learning and Child Care. The federal government will work with provincial, territorial, and Indigenous partners to build a Canada-Wide Early Learning and Child Care System. The funding would support a 50 percent reduction in average child care fees (aiming to reach $10/day by 2026), annual increases in affordable child care spaces across the country, and expansions to before- and after-school care in order to provide more flexibility for working parents. The government will also work with provincial and territorial partners to improve training and development opportunities for early childhood educators. 

OCC analysis: Leading up to Budget 2021, the OCC urged federal and provincial governments to invest in affordable, high-quality child care and address the shortage of early childhood educators. We are pleased with the Government of Canada’s historic investments and commitment to working closely with the provinces/territories on program design and delivery, as recommended in our report, The She-Covery Project: Confronting the Gendered Economic Impacts of COVID-19 in Ontario.

Financing for Entrepreneurs & Small Businesses  

Budget 2021 proposes a series of investments to help revive entrepreneurship and small business growth, including up to:

• $560 million per year to enhance the Canada Small Business Financing Program. Proposed amendments include expanding loan class eligibility, increasing the maximum loan amount, expanding borrower eligibility to include non-profit and charitable social enterprises, and introducing a new line of credit product to help with liquidity and cover short-term working capital needs.
• $450 million over five years for a renewed Venture Capital Catalyst Initiative to increase venture capital available to entrepreneurs, including $50 million toward a new Inclusive Growth Stream for underrepresented groups.
• $101.4 million over five years towards the Small Business and Entrepreneurship Development Program.
• $146.9 million over four years to strengthen the Women Entrepreneurship Strategy, which includes access to financing, mentorship, and training. 
• $51.7 million over four years for the Black Entrepreneurship Program.

OCC analysis: The OCC’s pre-budget submission argued that access to the right forms of capital will be key to the rebound of entrepreneurs and Canada’s economic recovery. Our submission called for enhancements to existing support programs, including the Canada Small Business Financing Program, and targeted programs to support women, Indigenous, and other diverse entrepreneurs who tend to be less well-financed. 

Support for Hardest Hit Sectors

Budget 2021 proposes to invest $1 billion to support Canada’s tourism industry as well as arts, culture and festivals of all sizes. An additional $430 million is proposed specifically to support cultural spaces, performing arts, musicians and music venues.

OCC analysis: For over a year, COVID-19 and the associated public health measures have had a detrimental and disproportionate impact on Ontario’s tourism industry, as well as the arts, entertainment and cultural sectors – as noted in the OCC’s 2021 Ontario Economic Report. Concerts and festivals have been cancelled while many music venues, cinemas and theaters have closed indefinitely. Direct and targeted support for these sectors is welcomed news. Existing programs can also be reformed to better support hardest hit sectors, such as modifying the Highly Affected Sectors Credit Availability Program (HASCAP) to include a forgivable loan option.  

Mental Health

Budget 2021 proposes various mental health initiatives, including new supports for veterans and Indigenous communities, and additional supports for Health Canada’s Wellness Together Canada portal.

OCC analysis: As outlined in the OCC’s report, Realizing the Full Potential of Virtual Care in Ontario, COVID-19 has introduced numerous challenges for Canadians – ranging from concerns about finances to social isolation to health. This additional investment aligns with the OCC’s recommendation which urged the federal government to treat mental health as a priority area. We are also pleased to see that funding has been earmarked for populations that were disproportionately impacted by COVID-19, including frontline and health care workers who have faced heavier workloads in riskier work environments, as outlined in our submission.  

Workforce Development

Budget 2021 is focused on equipping workers with the right skills to fill jobs. Over the next three years, the government is proposing $960 million for a new Sectoral Workforce Solutions Program to help connect Canadians with the training they need to access good jobs; $708 million over five years for Mitacs to create at least 85,000 work-integrated learning placements; $470 million to establish a new Apprenticeship Service to help apprentices in construction and manufacturing trades connect with opportunities at small and medium-sized employers; $298 million for a new Skills for Success program to help Canadians improve their foundational and transferable skills; $55 million for a Community Workforce Development Program for communities to connect growing organizations with training providers; and $250 million for an initiative to scale proven industry-led approaches to upskill and redeploy workers.

The Budget also proposes $721 million over the next two years to help youth and students build skills and connect with employers. This includes funding for the Student Work Placement Program to support work-integrated learning opportunities for post-secondary students; Canada Summer Jobs; the Youth Employment and Skills Strategy; and CanCode to help teach coding and digital skills to girls and other underrepresented groups in STEM sectors.

OCC analysis: As we recover from the pandemic, skills training will help ensure Canadians that have been displaced during the crisis can re-enter the labour market and businesses can find the workers they need. In the OCC’s pre-budget submission and advocacy letters, we called for expanded on-the-job training programs, partnerships with businesses, and support for underemployed Ontarians – all of which were included in Budget 2021. Going forward, we would like to see measures to enhance labour market information and expand the Ontario Immigrant Nominee Program.

Food Security

Budget 2021 proposes $140 million in 2021-22 to top-up the Emergency Food Security Fund and the Local Food Infrastructure Fund, which were announced in April and June 2020 respectively. 

OCC analysis: As outlined in the OCC’s recent policy brief, Growing a More Resilient Food Supply Chain in Ontario, food insecurity has risen (from one in eight Canadians prior to COVID-19 to one in seven with the onset of the pandemic) as businesses were forced to close, lay off workers, and/or reduce hours for staff. The OCC welcomes these investments as food insecurity impacts Canadians’ health and mental health and associated spending. However, we also encourage policymakers to invest in long-term solutions (i.e., infrastructure investments that will reduce the cost of food for rural and Indigenous communities), monitor and track rates of food insecurity during COVID-19, and equip the Canadian Food Policy Advisory Council with resources needed to engage directly with communities who disproportionately experience food insecurity.

Biomanufacturing and Life Sciences 

Budget 2021 commits $2.2 billion over the next seven years to strengthen Canada’s biomanufacturing capacity and life sciences sector. 

OCC analysis: The OCC is pleased with this investment as it directly aligns with the recommendation in our pre-budget submission. Ontario’s life sciences sector encompasses 6,140 firms in a number of industries, which contribute over $27 billion to the GDP. Investing in this sector will not only support almost 90,000 jobs and spur innovation and growth, but it will be critical to improving vaccine development in Canada.

Environment

To help ensure Canada is on a path to achieving net-zero emissions by 2050, Budget 2021 allocates $8.75 billion in funding over the next five years across a series of new policies, investments, and tax incentives. Some of these measures include: 

• Clean technology investments: $5 billion over seven years to the Net Zero Accelerator to invest in decarbonization of large emitters, transform key industries, and accelerate the adoption of clean technology across the economy; $1 billion over five years to help attract private sector investment in innovative clean technology projects; and $45 million over five years toward a 50 percent reduction in the corporate and small business income tax rates for businesses that manufacture zero-emission technologies. 
• Home retrofits: $4.4 billion to help homeowners complete deep home retrofits through interest-free loans.
• Resilience: $1.4 billion over 12 years to top up the Disaster Mitigation and Adaptation Fund to support projects such as wildfire mitigation activities, rehabilitation of storm water systems, and restoration of wetlands and shorelines; $11.7 million over five years to renew the Standards to Support Resilience in Infrastructure Program; and $63.8 million over three years to complete flood maps for higher-risk areas.
• Carbon capture, utilization, and storage (CCUS): $319 million over seven years to support research, development, and demonstrations that would improve the commercial viability of CCUS technologies. 
• Accelerated depreciation: $142 million to expand tax incentives for clean energy investments to more categories of equipment and technologies. 
• Zero-emission vehicles (ZEVs): $56 million over five years to develop and implement a set of codes and standards for retail ZEV charging and fueling stations in coordination with international partners such as the United States.
• Forestry: $54.8 million over two years to enhance the capacity of the Investments in Forest Industry Transformation program.
• Agriculture: refunding a portion of revenue collected on the carbon price directly to farmers in Ontario and other backstop jurisdictions, and $200 million over two years for the Agricultural Climate Solutions program. 
• Natural infrastructure: $200 million over three years to establish a Natural Infrastructure Fund to support natural and hybrid infrastructure projects.
• Green bonds: a new framework in advance of issuing its inaugural federal green bond in 2021-22, with an issuance target of $5 billion.

OCC analysis: The OCC strongly supports policies that reduce emissions while promoting innovation, economic growth, high-quality jobs. The measures proposed in Budget 2021 echo our recommendations by leveraging competitive advantages within Ontario’s business community (such as carbon capture and storage) and supporting energy-intensive industries (including manufacturing and forestry) as they make the necessary investments to decarbonize. Further, the OCC has specifically called for investments to incentivise building retrofits and improve the climate resilience of communities and their infrastructure.

Innovation & Industry

Budget 2021 announces several new investments to accelerate innovation and support Canadian business competitiveness. This includes a new Canada Digital Adoption Program that will help main street businesses expand their customer bases online and provide “off-main street” businesses (such as small manufacturing and food processing operations) with more comprehensive support to adopt new technology.

Budget 2021 also includes: $443.8 million over ten years for a Pan-Canadian Artificial Intelligence Strategy; $500 million over five years, and $100 million per year ongoing, to expand the Industrial Research Assistance Program that supports innovative small and medium-sized firms; $90 million over five years to retool and modernize the Canadian Photonics Fabrication Centre; $400 million over six years for a Pan-Canadian Genomics Strategy; $90 million over two years, to create ElevateIP, a program to help accelerators and incubators provide start-ups with access to expert intellectual property services; $75 million over three years for the National Research Council’s Industrial Research Assistance Program; $2.2 billion over seven years to help build Canada’s talent pipeline and research systems; and $2.6 billion over four years to the Business Development Bank of Canada to help SMEs finance technology adoption.

OCC analysis: The OCC is encouraged by the investments being made to support Canada’s digital economy and innovation ecosystem. Initiatives around intellectual property, artificial intelligence, and other areas echo recommendations made in our 2020 report, In Data We Trust: Unlocking the Value of Data in Ontario. These supports will create new high-quality jobs and allow businesses to remain competitive as the economy continues to evolve.

Procurement

Recognizing that procurement policy is a fundamental lever to achieve social and economic objectives, the federal government proposes $87.4 million over five years and $18.6 million ongoing to support modernization of federal procurement programs. This includes funding for supplier diversity programs, improved data tracking, and new reciprocal procurement policies to ensure that goods and services are only procured from countries that grant Canadian businesses a similar level of market access. 

OCC analysis: The OCC has called on governments to use procurement as a tool to support diverse entrepreneurs and incentivize a more inclusive economy (see our report, The She-Covery Project: Confronting the Gendered Economic Impacts of COVID-19 in Ontario). The measures in Budget 2021 are a promising step towards supplier diversity. Further, reciprocal procurement policies may help protect Canadian companies, but we caution that they must also protect the value of open markets and maintain Canada’s international trade commitments.

Broadband

In line with the government’s commitment to accelerate investments in broadband infrastructure and achieve a 98 percent high-speed coverage initiative by 2026, Budget 2021 proposes an additional $1 billion over the next six years for the Universal Broadband Fund, designed to improve rural and remote communities’ access to reliable, high-speed internet. The Budget also seeks to amend the Telecommunications Act to facilitate broadband delivery by allowing the Canadian Radiotelevision and Telecommunications Commission (CRTC) to share more information with federal, territorial, and provincial broadband partners and avoid unnecessary delays in funding allocations.

OCC Analysis: The OCC continues to actively advocate for the expedient rollout of broadband infrastructure that would enable more inclusive access to reliable, high-speed internet. While not new, the pandemic has highlighted economic disparities resulting from lack of internet access for both businesses and individuals in rural and remote communities. Continued efforts to reduce regulatory burden and accelerate connectivity programs throughout the province are welcomed and will help ensure that all Canadians and Canadian businesses have access to economic opportunities and essential services, such as virtual learning and health care.

Infrastructure

Following a number of previously announced infrastructure investments, Budget 2021 introduces new funding for a number of initiatives that are aimed at promoting long-term, inclusive economic growth. These include:

• $6 billion in new funds over the next five years to help close infrastructure gaps in Indigenous communities; $4.3 billion over four years will go to the Indigenous Community Infrastructure Fund which supports shovel-ready projects; and $1.7 billion over five years to cover operation and maintenance costs, such as lowering boil-water advisories.
• $82.5 million this fiscal year to Transport Canada to support major airports with COVID-19 testing infrastructure. 
• $1.9 billion over the next four years to recapitalize the National Trade Corridors Fund, which aims to attract an extra $2.7 billion from private and other public sector partners to spur necessary improvements to roads, rail, and shipping routes, strengthen economic resilience, and support internal trade. 
• $656.1 million over five years, and $123.8 million ongoing, to the Canada Border Services Agency to help modernize borders, automate interactions, and protect our border infrastructure’s integrity.
• $22.6 million over four years to Infrastructure Canada to conduct Canada’s first ever National Infrastructure Assessment. 
• $4.4 million to Transport Canada and VIA Rail Canada to support the High Frequency Rail Project in order to advance due diligence and to de-risk the project, and $491.2 million over six years for infrastructure investments that would support the overall success of the high frequency rail project. 
• $500 million over the next two years to the regional development agencies for community infrastructure to stimulate local economics, create jobs, and improve quality of life.
• $3.8 billion in new and re-assigned funding over the next seven years toward housing, including affordable housing supply, the Canada Housing Benefit, the Affordable Housing Innovation Fund, the National Housing Co-Investment Fund, and more.

OCC analysis: Investments in the National Trade Corridors Fund and High Frequency Rail Project will enable a more fluid transportation system in Canada, thereby supporting economic recovery, sustainability, and mobility, while alleviating bottlenecks and congestion. The OCC has long advocated for more regional economic growth opportunities for Northern Ontario (see, for example, The Great Mosaic: Reviving Ontario’s Regional Economies). Moreover, the OCC commends the government for its much-needed infrastructure investments in Indigenous communities. While efforts to supply more affordable housing are welcome, the budget does not specify any new measures to help cool the real estate market, which has seen average housing prices rise to historic highs, undermining Ontario’s ability to attract and retain talent. 

Taxation 

Budget 2021 proposes to implement several new tax rules designed to better capture business activities in today’s economy and help generate revenue for housing affordability. Specifically, the budget proposes:

• A Digital Services Tax of three percent on revenue from digital services that rely on data and content contributions from Canadian users. The tax would apply to large businesses with gross revenue of more than $1.1 billion, effective January 1, 2022 until an acceptable multilateral approach comes into effect. 
• Canada’s first national tax on vacant property owned by foreign non-residents at an annual rate of one percent beginning January 1, 2022. The tax will require such owners to file a declaration as to the current use of the property, with significant penalties for failure to file. 
• A new tax on sales for the personal use of luxury cars, personal aircraft, and boats. 
• A new taxation framework for the imposition of excise duties on vaping products in 2022.
• An increase to the tobacco excise duty, along with corresponding increases to the excise duty rates for other tobacco products. This measure would take effect the day after Budget Day.

OCC Analysis: The OCC supports efforts to leverage Canada’s tax system in ways that strengthen economic growth and business investment. To better support Canadian businesses, improvements can be made to the Digital Services Tax by working through the OECD on a multilateral approach instead of creating a one-off Canadian model that may not align with our trading partners. Additional taxes on tobacco and vaping products could have unintended consequences, namely spurring contraband or counterfeit products. Achieving the target set out in Canada’s Tobacco Strategy will also require investment in effective public awareness campaigns. 

Debt and Deficit Management

After more than a year of emergency government spending amounting to levels not seen since World War II, the 2021 Canadian federal budget plans for $101.4 billion in new stimulus spending over the next three years (representing 4.2 percent of Canada’s GDP) intended to spur long-term economic growth. 

Budget 2021 sets out a fiscal plan to reduce the federal debt-to-GDP ratio over the medium-term and unwind COVID-19-related deficits. Stronger-than-expected economic growth in the fourth quarter of 2020 and first quarter of 2021 ameliorated the deficit level forecasted in the 2020 Fall Economic Statement (from $381.6 billion to $354.2 billion). After accounting for $49.3 billion in new budget spending, the federal deficit for the current fiscal year is projected to decline to $154.7 billion, and further decline year-over-year afterwards to reach $30.7 billion by 2025-26 (1.1 percent of GDP).

The federal debt will increase to $1.23 trillion this year, and is expected to reach $1.41 trillion by 2025-26. Canada’s debt-to-GDP ratio is now 51.2 percent for 2020-21 (compared to around 30 percent pre-pandemic), and is projected to fall to 49.2 percent by 2025-26. This is the federal government’s medium-term fiscal target. 

OCC Analysis: Budget 2021 clearly signals the federal government’s willingness to invest in an inclusive, sustainable, and long-lasting economic recovery. The proposed $101.4 billion in stimulus aims to account for the uneven impact that COVID-19 has had and continues to have on certain sectors and Canadians. 

While criticism exists around the high deficit and increased expenditures, the Budget outlines that Canada is in a better fiscal position than previously anticipated with the debt-to-GDP ratio and deficit declining year-over-year. Despite recent increases in interest rates, debt servicing costs as a percentage of GDP are expected to stay near their lowest level in over a century over the forecast horizon. 

Meanwhile, in addition to pent-up demand, investments made through Budget 2021 around infrastructure, economic supports, interprovincial trade, and regulatory modernization will help bolster medium- and long-term economic growth and government revenues. The key to ensuring the viability of this target – while absent of a ceiling on spending – will be to hold the government accountable for meeting growth targets. 

However, the government is encouraged to work towards clearly identifying a path towards a balanced budget and replace current fiscal guardrails and a medium-term debt-to-GDP target with a sound fiscal anchor to foster long-term fiscal sustainability. Moreover, unlike previous budgets, there is no contingency funding included, despite a highly uncertain outlook.

Further, with the third wave well underway, caution should be exercised when winding down pandemic support programs to avoid withdrawing essential supports too soon in the midst of rising business closures, declining business sentiments, and high unemployment. Additional considerations should be made in light of inflationary risks and the potential rise of interest rates subsequent to expectations for significant pent-up demand. 

For more details, please refer to the OCC’s pre-budget submission.