Federal Budget Analysis 2023

Cumberland Strategies 
Federal Budget 2023 

Today Finance Minister Chrystia Freeland tabled A Made-In-Canada Plan: Strong Middle Class, Affordable Economy, Healthy Future (Budget 2023). The Budget allocates billions in spending to insulate Canada from the coming recession. Core themes focus on keeping Canada competitive amid the global clean energy transition and supporting Canadians with the high cost of living.

Freeland’s’ budget is released amidst national and global uncertainty, including a protracted war in Ukraine, rising tensions with China, a string of US bank failures, and a US Biden Administration shifting heavily towards an industrial bioeconomy. Today’s investments and policies reflect the forecasting that Canada will enter a recession this year. Since March 2022, the Bank of Canada has aggressively increased interest rates to crack down on high inflation, with the federal government facing pressure not to fuel it further with high spending.

Budget 2023 will pass if the Supply and Confidence Agreement that the Liberals have with the New Democratic Party holds up. The national dental care plan released today should maintain NDP support, but there is an indication that the Agreement might only last for a while. The NDP has recently stated that they are “tired of pushing the government” to implement social democratic policies and are re-assessing terms.

The Liberals have not exercised spending constraint; rather, Freeland stated that there is a “direct connection” between economic prosperity and investments in immigration, childcare and health care. The federal deficit is projected to be $40.1 billion in 2023-2024, nearly $10 billion more than forecast in last fall’s economic screenshot.

1. Green Economy/Industrial Strategy

Today’s investments aim to keep Canada in lockstep with the US Inflation Act, which rolled out hundreds of billions in funding, incentivizing companies to invest long-term in the green economy. Canada has a similar interest in seizing the opportunity of bio-manufacturing and biotechnology.

Key investments include:

• 30 percent clean-tech manufacturing tax credit worth $3B over five years to kickstart critical minerals mining.
• Investment Tax Credit for clean energy valued at $6.3 billion over five years. This credit will offer 15 percent for investments in non-emitting electricity, natural gas-fired electricity generation and energy storage.
• An Investment Tax Credit for carbon capture, utilization, and storage valued at $520 million over five years.
• $20 billion to the Canadian Infrastructure Bank (CIB) for clean electricity.
• The government is boosting strategic innovation funding with $500 million over ten years for cleantech.
• $333 million over ten years for agriculture and agri-food research and development.
• $368 million over three years for forest sector innovation.

2. Housing and Affordability

Canada is currently facing an affordability crisis. “Targeted, temporary relief” is what Freeland pledges for people hardest hit by inflation.  In February, grocery prices were 10.6 percent higher than a year ago, and housing is at an all-time high.

The federal government:

• Will temporarily boost the GST rebate labelled a “grocery rebate” for low-income Canadians. The rebate would provide up to $234 for a single person with no children, $467 for a couple with two children and $225 for a senior.
• Increasing the withdrawal limit for a registered education saving plan from $5,000 to $8,000.
• Working with regulatory agencies to go after hidden or unexpected surcharges tacked on to the price of goods or services.

3. Healthcare

Last month, the federal government offered provinces and territories nearly $200 billion in funding for the next ten years. However, the NDP has demanded larger commitments in the healthcare sector, which is reflected in today’s Budget.

Additional highlighted investments in health care include:

• $359.2 million over five years to support a “renewed Canadian Drugs and Substance Strategy” in the setting of an opioid crisis across the country.
• $158 million to help build the Suicide Prevention Line.
• Creation of a federally funded and administered dental care program. The national dental care plan will be rolled out by the end of 2023 and eventually cover up to 9 million uninsured Canadians.
• $505 million over five years to the Canadian Institute for Health Information, Canada Health Infoway, and other partners for better health care data.
• $36 million over three years to renew the Sexual and Reproductive Health Fund.

4. Business

As expected, Freeland is targeting some of the wealthiest Canadians to close loopholes that allow them to pay less tax.

For example, Budget 2023:

• Introduces a 2 percent tax on stock buybacks, hiking the “alternative minimum tax” to make the wealthier pay more and to tax dividends received by financial institutions. These measures will give the government over $11 billion in revenue.

Political Analysis

This Budget is not a departure from what we’ve seen in recent Liberal spending. The Conservatives will gain inroads with the argument that this economic climate is not the time to increase social spending. Poilievre has urged the government to cut payroll taxes and regulations to spur housing construction and mining development. Not all of Poilievre’s recommendations were ignored, and the government conceded some ground on cutting $15.4 billion over the next five years on payroll and management consultant expenses.

For the Liberals, this budget is about managing domestic pressure points. The Liberals lean heavily toward developing critical minerals, green energy, and clean technologies. These investments also set the stage for key issues dominating the next general election campaign, namely how the country will address climate change and build future jobs. However, the Liberals significantly dropped the ball: zero dollars were announced in housing. With the housing crisis at the forefront of issues facing Canadians – particularly younger Canadians – the Liberals missed the mark.

Poilievre’s poll numbers have held steady over the past few months. The Conservatives lead the Liberals in most national polls – skyrocketing after recent allegations of Chinese interference in the last federal election. Poilievre’s populist brand of politics and organizational skills are putting Conservatives in their best position to retake government since 2015. Today’s Budget was an opportunity for the Liberals to respond to Poilievre – but is heavily investing in a green economic transition the answer for the everyday Canadian? If not, they may be more inclined to look to Poilievre, who is attempting to appeal to those feeling the pressures of today’s economy.