Rapid Policy Update
2022 Federal BudgetApril 8, 2022
On April 7, 2022, the Government of Canada released its 2022 Budget: A Plan to Grow Our Economy and Make Life More Affordable. Building on previous commitments, Budget 2022 proposes a series of new investments in public health, housing, the green economy, workforce development, infrastructure, and other areas. The following is a summary of highlights from the perspective of Ontario’s business community.
Budget 2022 proposes more than $10 billion in new spending on housing initiatives, including a $4 billion investment over five years to develop 100,000 new housing units through the launch of a Housing Accelerator Fund. Other measures include a new savings vehicle and boost in tax credits for first-time home buyers and a two-year ban aimed at foreign buyers.
OCC analysis: Housing has become a key issue for businesses, limiting their ability to access and retain talent. The OCC is pleased to see the government prioritize housing affordability, particularly through increased supply. More attention is needed at the local and provincial levels to accelerate development of missing middle and affordable units. Other initiatives – such as banning foreign investment – will do little to cool the housing market if supply fails to keep pace with growing demand.
Environment & Energy
Budget 2022 comes on the heels of the federal government’s 2030 Emissions Reduction Plan, which included several welcomed announcements around cleantech, zero-emission vehicles, clean energy projects, and energy efficiency retrofits for businesses. Building on that plan, the budget proposes new spending commitments, including $3.8 billion over eight years to implement a national critical minerals strategy, $2.6 billion over five years for the carbon capture, utilization, and storage (CCUS) tax credit, $120.6 million over five years for small modular reactor frameworks, additional funding for zero-emission vehicles, and investments in sustainable agriculture.
It also expands the Canada Infrastructure Bank’s mandate to invest in private sector-led projects for small modular reactors, hydrogen and carbon capture. Several related investments are tied together in a new Canada Growth Fund, which promises to initially spend $15 billion over five years.
OCC analysis: Leveraging Canada’s opportunities in the green economy will be critical to its recovery and long-term competitiveness. We are pleased to see a wide range of federal commitments in this area in line with the OCC’s recommendations, particularly the focus on attracting private capital. Looking ahead, we call on the government to go further in recognizing nuclear as a critical clean technology and expand eligibility to federal financing and tax incentive programs. The success of the $15-billion Canada Growth Fund will depend on implementation, including eligibility details. We look forward to working with the government and our members to unlock these opportunities.
Following a recently announced one-time payment of $2 billion to provinces to help address surgical backlogs, Budget 2022 also proposes a 4.8% increase in the Canada Health Transfer payment, an increase which reflects economic growth as the transfer is indexed to a 3-year average of Canada’s GDP. Building on last year’s investments in mental health, Budget 2022 provides $140 million over 2 years for Health Canada’s Wellness Together Canada portal to help Canadians access free information and support.
OCC analysis: After two years of the pandemic, increased federal health spending is necessary to address the surgical backlog, insufficient capacity within the system, and the growing mental health crisis. The proposed increase to health transfers is welcome, though it falls short of the provinces’ request ($28 billion per year) or the OCC’s recommendation (an average of 35% of provincial health care spending). With regards to mental health, it will be important to address gaps for communities that do not have access to the online portal due to insufficient broadband connectivity or financial barriers.
Workforce Development & Immigration
In response to health human resource shortages, Budget 2022 proposes to provide $115 million over five years, with $30 million ongoing, to expand the Foreign Credential Recognition Program and help up to 11,000 internationally trained health care professionals per year get their credentials recognized and find work in their field. For the skilled trades, the government proposes to introduce a Labour Mobility Deduction, which would provide tax recognition on up to $4,000 per year in eligible travel and temporary relocation expenses to eligible tradespersons and apprentices.
Building on an announcement made earlier this week to reduce barriers in the Temporary Foreign Worker (TFW) program, the budget also proposes $48.2 million over three years to implement a new streamlined program for agriculture and fish processing workers. It also proposes: $385.7 million over five years, and $86.5 million ongoing, to facilitate the timely and efficient entry of a growing number of immigrants to Canada; $1.3 billion over the next five years and $331.2 million ongoing to support the long-term stability and integrity of Canada’s asylum system; and additional funding to improve support services for new immigrants.
Additional commitments are made to support underrepresented groups in the labour market. This includes developing an employment strategy for persons with disabilities through the Opportunities Fund and expanding the Union Training and Innovation Program to help more women, newcomers, persons with disabilities, Indigenous peoples, and racialized Canadians access job opportunities in the skilled trades.
Finally, the budget proposes to modernize Employment Insurance (EI) to ensure more workers are eligible for help before they become unemployed, and that employers can receive direct support to re-train their workers.
OCC analysis: The OCC strongly supports federal efforts to reduce barriers to interprovincial labour mobility and recognition of foreign credentials. We have been advocating for targeted strategies to support sectors exhibiting large shortages (such as health care, agriculture, and skilled trades) as well as underrepresented demographics (such as women, persons with disabilities, and Indigenous peoples). For additional relief in the health care sector, we also encourage the government to pursue a national licensure strategy that would allow physicians and other regulated health care professionals to work across provincial and territorial borders.
EI modernization is also welcome, though the budget provided little detail. The OCC has advocated for the federal government to conduct a comprehensive review of EI to ensure it is sustainable, inclusive and relevant for current and future generations of Canadians. These consultations are currently under way and we look forward to continuing to work with the government to ensure we have a EI system that fosters a modern, productive and inclusive workforce.
Infrastructure and Supply Chains
Budget 2022 proposes $603.2 million over five years to improve supply chain resiliency and efficiency. This includes $450 million to support supply chain projects through the National Trade Corridors Fund (in addition to the $4.2 billion that has been previously earmarked), $136.3 million to develop industry-driven data solutions to make supply chains more efficient, and $16.9 million towards red tape reduction. Additional supply chain initiatives focus on critical mineral sectors.
To improve rail transportation, Budget 2022 proposes $397 million over two years towards high frequency rail between Toronto and Quebec City and $43 million over four years to VIA Rail Canada to construct, maintain, and upgrade facilities along the Windsor to Quebec City corridor.
OCC analysis: The OCC has called for a number of supports to address supply chain issues, including investments in trade-enabling infrastructure and digital efficiencies. The investments introduced in this budget are important steps for easing the movement of goods across Canada’s transportation networks. We encourage ongoing commitments to address bottlenecks at airports and expand the availability of logistics and warehousing facilities.
Since last year’s historic investment of $2.75 billion in broadband was announced, there has been little to no movement on broadband rollout in rural and remote communities. Access to high-speed internet continues to be inadequate for many regions across Canada, impairing productivity and well-being. The OCC encourages the federal government to prioritize regulations and accelerate rollout to address these gaps.
Finally, although the budget’s focus on housing and infrastructure was welcome, the OCC had hoped to see new dedicated funding to help cities with the cost of state-of-good-repair projects and improving the climate resiliency of existing infrastructure.
To encourage small business growth, the budget proposes to extend the 9% small business tax rate to businesses with capital up to $50 million (previously $15 million).
OCC analysis: The budget fell short of providing immediate, targeted relief to sectors and small businesses that continue to grapple with the impacts of the pandemic. For small businesses, we would have liked to see targeted debt forgiveness and financial relief.
The budget proposes to launch a new cannabis strategy table to foster more dialogue between government and stakeholders in the cannabis sector, alongside some minor changes to the cannabis excise tax intended to help smaller licensed producers.
OCC analysis: The cannabis sector has quickly emerged as one of Canada’s fastest-growing, uniquely positioned as a home-grown industry with an entirely domestic supply chain from seed to sale. Our Ontario Cannabis Policy Council looks forward to working with the government as part of their dialogue with industry.
Indigenous Businesses & Communities
Budget 2022 commits another $10.6 billion to support reconciliation. This includes $398 million over two years to Indigenous Services Canada to support community infrastructure on reserve, of which at least $247 million will be directed toward water and wastewater infrastructure. The budget commits $500 million to support various Indigenous business ventures and commits to forgiving 50% of the COVID-Indigenous Business Initiative loans that supported businesses in need during the pandemic. It also proposes $131 million over five years to improve Indigenous partnerships in natural resource projects.
OCC analysis: Canada has a long road ahead towards reconciliation. Infrastructure gaps are a major barrier to socioeconomic well-being on reserves, and Indigenous entrepreneurs tend to face disproportionate barriers to accessing capital. Indigenous communities also have a wealth of expertise in natural resource management and face an outsized share of climate change impacts. The OCC has called for a greater emphasis on financing for Indigenous-led businesses and Indigenous-led clean energy projects. We support continued public investments and meaningful efforts within the private sector to advance reconciliation.
Debt and Fiscal Management
Budget 2022 reports higher revenues for the 2021-22 fiscal year than previously anticipated, largely the result of rising inflation and higher commodity prices. As a result, the government’s fiscal position saw an overall improvement by $85.5 billion over the six-year projection horizon and a $30.7 billion improvement in the deficit for 2021-22 relative to the 2021 Economic and Fall Update.
Following strong employment gains in most recent quarters, along with relaxed pandemic restrictions, real GDP growth is expected to close at 4.6% for the 2021-22 fiscal year. Canada is expected to see a net debt-to-GDP ratio of 50.6% in 2021-22, dropping to 45.1% in 2026-27 (compared to 51.2% the previous year and 30% pre-pandemic).
Importantly, Budget 2022 outlines the government’s intention to ease emergency stimulus spending, with total net new spending amounting to $29 billion over the next five years. A reduction in stimulus spending comes against the backdrop of growing inflation after reaching 5.7% in February, and interest rates which are anticipated to climb another 50 basis points this quarter in response to inflationary pressures.
OCC analysis: Canada’s economy continues to be plagued by an ever-present COVID-19 pandemic, further riddled with economic challenges such as supply chain disruptions, labour shortages, inflation, and most recently, the impacts of the war in Ukraine. Households and businesses are feeling the pinch, some more than others. As interest rates rise, Minister Freeland aptly pointed out the government’s ability to spend is not infinite.
The business community has long called for the government to pursue a declining debt-to-GDP ratio as its fiscal anchor. If this is to unfold, Canada will need to strengthen its economic growth and competitiveness. While the OCC is pleased to see the deficit fall, we encourage the government to be proactive with a formal growth strategy in the medium-to-long term. Going forward, it will be critical to balance short-term spending at a time when inflation remains high with the necessary investments that spur long-term economic growth and encourage innovation.
Budget 2022 was missing a commitment to prioritize privacy modernization, which will be increasingly critical to innovation, business competitiveness, and consumer well-being.
Although we appreciate the mention of interprovincial trade barriers, we encourage the federal government to make more tangible commitments in this area, such as creating a public repository of information to help policymakers advance reforms in this area.
Further, while the budget did contain some tax reforms, Canada is overdue for a comprehensive review of the federal tax system reforms with an eye to attracting foreign direct investment, driving business productivity, and encouraging innovation.
More broadly, despite a number of pro-growth measures, Budget 2022 lacks an overarching plan and vision for economic growth that will encourage private sector investment and reduce the debt-to-GDP ratio. Now more than ever, it is critical for Canada to leverage private capital and reduce regulatory barriers that inhibit growth.
For more details, refer to the Ontario Chamber of Commerce’s 2022 federal budget submission.