Budget 2022: Why We Spend

Some Budgets are introduced with Speeches that are written in poetry, others in prose. It is either clarion call or laundry list. This one was somewhere in between. The Speech, and the Budget it introduced, had many masters: a global pandemic; a war featuring a nuclear power and autocrat brutally attacking a neighbour; and a national and global economy facing unprecedented strains and challenges. In addition, the Minister of Finance carries the responsibilities of Deputy Prime Minister, the angst of deep personal ties with Ukraine, and responsibility for accommodating a new roommate in power, the NDP.

While it may have been no surprise that the Minister’s speech mentioned Putin as often as productivity, the mix of global crises was used to justify not just an increase in defence and foreign assistance spending, as would be expected, but a wide range of national, domestic spending measures expressed as contributing to safeguarding our democracy. One such item is apparently dental care! (There is a paucity of detail on how to deliver some of these things which are clearly within the purview of the provinces). Not to be outdone by the populists on the right, the Liberals also used the goal of protecting democracy to take aim at basic cost-of- living issues such as housing. They also found easy prey in going after apartment landlords and financial institutions. What is odd about the broad attack on financial institutions is that these are the entities who help finance housing so crucial to prospective homeowners. Measures like these pander to the NDP and send the counterintuitive message that, in Canada, success is a bad thing.   

The challenge of this approach is that it might miss some core economic challenges that need to be addressed by something more than hashtag policies. It’s likely the reason that the otherwise somnolent bankers and financial industry leaders went public with their worries about economic growth and productivity. And, in a time when energy is a central geopolitical and economic issue, simply wrapping everything in the word ‘green’ might not cut it anymore.   

On the fiscal front, the Government’s debt and deficit ratios will reflect a short-term windfall from higher commodity prices. The problem is that the new spending being unleashed is permanent and growing. The diagram doesn’t look so good down the road.

Here is a summary of Budget 2022 (the full Budget document can be found here):  

Budget 2022 is organized under three themes: (1) supporting people (and the economy); (2) transitioning to a greener economy, and (3) addressing productivity and innovation. However, while the Budget Speech reflected on these items in equal measure, the Budget itself was very heavily focused on item 1.

Supporting the People and the Economy: Probably the premier element of the Budget – accounting for almost one-third of the Budget text – are several components aimed at making housing more affordable. This includes everything from helping Canadians save for their first home through tax measures, banning foreign buyers from purchasing properties for two years, increasing supply through a variety of measures, and a host of other items.  The government will also be launching a review of housing as an asset class, with a focus on the role of large corporate players in the market and the impact on Canadian renters and homeowners. 

Also included in this theme are a range of initiatives aimed at improving public health care, including the much talked about public dental plan, as well as supports for mental health and addictions and strengthening our ability to respond to (the next) public health emergencies. Affordable childcare, increased immigration levels, enhanced opportunities and protections for workers, and moving forward with the government’s commitment to Reconciliation are also all part of this stream.  

Greener Economy: The government is moving forward with a series of zero emissions vehicle (ZEV) mandates for various types of vehicles, beginning in 2026, as well as support for consumers through incentives, and an expansion of EV charging infrastructure. Additional measures include funding support for carbon capture and storage, and funding for the regulation of Small Modular Reactors (SMRs) and the management of waste.  

Productivity and Innovation: The Budget contains a number of items aimed at enhancing productivity and stimulating innovation. This includes:

  • A series of commitments aimed at supporting critical minerals projects in Canada including funding for infrastructure investments that would support the development of critical minerals supply chains and the introduction of a new Critical Mineral Exploration Tax Credit.
  • The creation of a new arms’ length public investment vehicle with a mandate to reduce emissions, bolster exports by investing in the growth of low-carbon industries, support the restructuring of critical supply chains in areas important to Canada’s future prosperity, including Canada’s natural resources sector. It is proposed that the Fund would utilize a suite of financial instruments including all forms of debt, equity, guarantees, and specialized contracts. The fund will be initially capitalized at $15 billion over the next five years, and will invest on a concessionary basis, with the goal that for every dollar invested, it will aim to attract at least three dollars of private capital.
  • The creation of an operationally independent federal innovation and investment agency, with $1 billion over five years to support its initial operations.

Focus on Financial Institutions: Financial institutions are a target in this Budget; key measures include:

  • A temporary Canada Recovery Dividend, under which banks and life insurance companies will pay a one-time 15 per cent tax on taxable income above $1 billion for the 2021 tax year,
  • A permanent increase the corporate income tax rate by 1.5 percentage points on the taxable income of banks and life insurance companies above $100 million, and
  • An intention to introduce targeted legislative measures to strengthen the external complaints handling system and to put in place a single, non-profit, external complaints body to address consumer complaints involving banks.

If you would like more information please contact Barry Campbell barry@campbellstrategies.com or Paul Brown paulb@campbellstrategies.com.