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Bluesky Budget 2018 Review

February 28, 2018

Federal Budget 2018

 

Equality + Growth, A Strong Middle Class

 

Introduction

Minister of Finance Bill Morneau delivered his third federal budget today, focusing on strengthening the economy by promoting gender equality and bringing more women into the Canadian workforce. The 367-page budget document prioritizes science and innovation, improving housing for Indigenous peoples and putting protection measures in place for Canada against cyberattacks. It is a fiscal plan focusing on minor initiatives, shifting allocations and small tweaks in comparison to the more substantial budgets of 2016 and 2017.

 

Budget 2018 focuses on six key priorities:

  • Gender-Equity and Second Parent Leave

  • The creation of an Advisory Council on the Implementation of National Pharmacare

  • Taxes

  • Indigenous Housing and Skills

  • Targeted innovation funding

  • Infrastructure

Economic Outlook

The Canadian economy continues to steam for­ward. Canada has the fastest grow­ing economy among G7 nations, with second-quarter real gross domestic product (GDP) growth hitting 4.5% while Canada’s economy (real GDP) is expected to grow by 3.1% in 2017 and by 2.1% next year.

 

Currently Canada has a $18 billion deficit with a debt-to-GDP ratio of 30.1 per cent., This is also which is consistently decliningforecast to decline to 28.4 per cent in 2022–23. Further, the employment rate is at nearing historic highs. Since the Liberals entered office, Canada’s economy added over 600,000 jobs and the unemployment rate has fallen from 7.1 per cent to 5.9 per cent—close to its lowest level in over four decades.

 

What we DID See - Highlights

 

Gender equality

For the first time, the federal budget has been crafted using a new, mandatory government-wide, gender-based analysis. In the context of the budget, departments were tasked with identifying how line items might affect women and girls differently from men and boys. The goal is to empower women — but also to address looming productivity challenges caused by an aging population.  

 

Supporting Equal Parenting and the Flexibility for Earlier Returns to Work

A new five-week "use it or lose it" incentive would allow fathers or non-birth parents to take parental leave and share the responsibilities of raising their baby, allowing the women primary parent, typically a woman, to return to work earlier after having a baby, if they choose.  To support this, the Government will provide $1.2 billion over five years, starting in 2018–19, and $344.7 million per year thereafter, to introduce a new EI Parental Sharing Benefit. The Benefit will provide additional weeks of “use it or lose it” EI parental benefits, when both parents agree to share parental leave. This incentive is expected to be available starting June 2019.

 

National Pharmacare

Budget 2018 launches the creation of an Advisory Council to implement a national Pharmacare program. Leading the charge will be Dr. Eric Hoskins, former who resigned as Ontario Health Minister who resigned the day before the budget. Hoskins is  and the architect of Ontario’s “OHIP+” and a long-time advocate for a national Pharmacare program.

 

 Assuming there will be a consultation process and research on various options, pharmaceutical companies, the health sector, consumers and business will likely be given a voice on the design of the national program.

 

While the timeline is not set in stone, it is rumoured that Dr. Hoskins will report to the Federal Government in 2019 and deliver a blueprint for a national Pharmacare program prior to the next election. There are no details on the cost for the Advisory Council’s work. A national Pharmacare program, typically an NDP electoral pledge, has been strategically usurped by the Liberals in an eeffort to strengthen the left-wing flank of the voter-base.

 

Indigenous Housing and Skills

Budget 2018 proposes investments to help improve the quality of life of Indigenous Peoples and close the gap between Indigenous and non-Indigenous communities in areas such as support for families, health care and job opportunities.

 

To help close the employment and earning gaps between Indigenous and non-Indigenous people, Budget 2018 proposes to invest $2 billion over five years, and $408.2 million per year ongoing, to support the creation of a new Indigenous Skills and Employment Training Program, which will replace the Aboriginal Skills and Employment Training Strategy. This includes incremental investments of $447 million over five years, and $99.4 million per year ongoing, and a stronger focus on training for higher-quality, better-paying jobs rather than rapid

re-employment. This additional funding will assist approximately 15,000 more clients gain greater skills and find jobs that will support their long-term career success.

 

In Budget 2018, the federal government proposes dedicated funding to support the successful implementation of each of the distinctions-based housing strategies introduced in Budget 2017, this includes:

  • An additional $600 million over three years to support housing on reserve as part of a 10-year First Nations Housing Strategy that is being developed with First Nations.

  • $400 million over 10 years to support an Inuit-led housing plan in the Inuit regions of Nunavik, Nunatsiavut and Inuvialuit. This is in addition to the $240 million over 10 years announced in Budget 2017 to support housing in Nunavut, where additional funding was provided for Inuit housing.

  • $500 million over 10 years to support the Métis Nation’s housing strategy.

This is in line with the government’s broader Reconciliation efforts. Indigenous reconciliation has not been a smooth road for the Liberal government, and Budget 2018 serves as a reaffirmation of their commitment to this important campaign promise.

 

Taxes

In the leadup to the budget, there was significant pressure on the finance minister to There was some speculation that Canada would lower corporate taxes to remain competitive with the United States, following their recent tax cuts, . However, Minister Morneau held the lineinstead Canada has opted to hold the line, choosing measures to help businesses in other ways, including spending for women-led businesses, innovation, and diversification of trade.

The minister faced significant criticism over his initial plans to change small business taxes last year before backing down on some of the proposed changes and reviving a promise to reduce the small business tax rate. The new structure sets a threshold of $50,000 on passive income to allow for some personal savings. Private corporations who earn over  $50,000 in passive income, up to a maximum of $150,000, will see their ability to claim the small business tax rate of 15 percent eventually phased out. . Despite the softening of these tax measures, an additional $1 billion is still expected to flow from business pockets to the treasury.

 

With the pending legalization of cannabis for personal use, a tax framework of the higher of $1 gram or 10 per-cent of product price will generate hundreds of millions in new tax revenue with 25 per-cent to the federal government and the rest to the provinces. In Budget 2018, the federal government for the near term, will cap federal tax revenues at $100 million a year, flowing the excess to the provinces.  Of the federal portion, much is being pledged to education and prevention programs.

 

Increasing “sin” taxes is also back in vogue, with a $1 per carton hike in tobacco taxes, with an annual inflationary increase moving forward.

 

Innovation

Budget 2018 is placing a larger emphasis on funding more developed innovative technologies. This includes raising the support provided by the Industrial Research Assistance Program (IRAP) and seeing the Strategic Innovation Fund move away from supporting smaller projects to support larger projects, hoping they will lead to higher job creation and enhanced economic growth. They government will also be doing more to see Canadian goods be sold abroad and support businesses looking to access foreign markets.

 

Revamped IRAP

Designed to help Canadian entrepreneurs and small business owners develop innovative technologies and successfully commercialize them in a global marketplace, IRAP offers flexible funding along with consulting services. IRAP has proven to be an effective resource for growing Canadian companies and innovative entrepreneurs. This program is well positioned to support funding for larger projects above the current contribution threshold of $1 million.  To enable IRAP to support business research and development for projects up to a new threshold of $10 million, the Government will invest $700 million over five years, starting in 2018–19, and $150 million per year ongoing.

 

Canada Foundation for Innovation

The Canada Foundation for Innovation provides access to the state-of-the-art tools and facilities that researchers need to carry out the promising and innovative research. Budget 2018 will provide the Canada Foundation for Innovation with $763 million over five years, starting in 2018–19, including $160 million for increased support to Canada’s nationally important research facilities through the Foundation's Major Science Initiatives Fund. The Government also proposes to establish permanent funding at an ongoing level of $462 million per year by 2023–24 for research tools and infrastructure supported through the Canada Foundation for Innovation.

 

Shifting the Strategic Innovation Fund to support larger projects

To allow for more focused support for business research and development projects over $10 million, the Strategic Innovation Fund will move away from supporting smaller projects to support larger projects that may lead to significant job creation and shared. The Fund’s objective to facilitate the growth and expansion of firms and attracting large-scale job-creating investments will remain unchanged. At the same time, the Fund’s role in advancing research and development through collaboration between academia, not-for-profits and the private sector will be expanded. .  One exciting SIF funding commitment was to technology for the next generation of Low Earth Orbit satellites as part of a $100 million investment over five years to bring high-speed broadband access to every inch of Canada.

 

Infrastructure

The government is able to Budget 2018’s spending commitments and maintain a $18 billion deficit in large part due to deferred infrastructure spending. In spite of ambitious infrastructure spending promises in the Liberal platform and Budgets 2016 and 2017, the government has been slow at getting money out the door. Of all the $9.36 billion pledged in Budgets 2016 and 2017, only $6.55 billion has been spent on infrastructure, leaving $2.81 billion unspent. Since taking office, the Liberals had approved more than 3,400 water and transit projects with a combined federal contribution valued at almost $4.2-billion. Nevertheless, the government maintains that all the unspent money will be reprofiled for infrastructure spending through 2023.  On April 1, 2018, the government will start funding the 10-year, $40-billion National Housing Strategy, a major plank of the social infrastructure envelope.

 

Investing in Canadian Content

In Budget 2018, the Government proposes investing $172 million over five years, with $42.5 million every year ongoing, in the Canada Media Fund, to foster Canadian-produced content. This funding maintains the level of investment from 2016-2017.

 

What we DIDN’T See

 

National Defence
National Defence has seen virtually nothing in terms of new spending on the nuts and bolts of the military, other than initiatives outlined in the Strong Secure Engaged defence policy beyond a $750 million over five years commitment to improve cyber security and better prepare the federal government to fend off online attacks and track down cyber-criminals.  The industry is still awaiting the National Defence Investment Plan which when SSE was released in June 2017, was promised for the end of the year, then “early 2018.”  The Investment Plan is expected to outline how the 20-year committed funding for new defence procurement is supposed to be rolled out.

Space
Much had been made in recent months about Canada’s faltering track record in space investment compared to other nations and a new space strategy which industry is eagerly awaiting has yet to materialize – along with investment outside of that announced in for including new satellite technology in rural and remote broadband deployment (See SIF above).

 

Agriculture
Despite a 2017 Federal Budget that touted the economic growth potential of the agriculture sector, agriculture did not feature prominently in the 2018 Budget. While the sector took a back-seat to issues such as Pharmacare, Indigenous communities, and gender-equity, there were some items of note relating to trade, small-business taxes, gender-parity, and green technology. There was no mention of the Healthy Eating Strategy or Canada Food Guide.

 

Conclusion

 

Finance Minister Bill Morneau’s third federal budget focuses on boosting productivity and offsetting an aging population by bringing more women into the workforce in sectors ranging from science to skilled trades. Titled "Equality + Growth, A Strong Middle Class," the 367-page budget document offers new money for Gender Equality initiatives, Second Parent Leave, the creation of an Advisory Council on the Implementation of National Pharmacare, reduced infrastructure spending over the next few years (though this includes the planned end of older initiatives from the previous government) and Gendered lens.

 

In 2018, the federal government will double down on spending as they need to fulfill campaign promises in the lead-up to the 2019 Election. The Liberals know they will need to justify their wide spending since the 2015 election and have deliverables to secure electoral success next Fall.

 

The bottom line: Budget 2018 holds the course, focusing on delivering the Liberal government’s social issues-heavy policy agenda.  This sets the stage for a classic big election budget in Spring 2019 – six months ahead of the 44th General Election on or before October 21, 2019.   

 

Want to know more?

 

For further discussion and insight into what Budget means to your organization and how to best  take advantage of these and other government initiatives, please feel free to contact us.

 

  • Tim Barber, Principal, tim@blueskystrategygroup.com  ext. 223

  • Susan Smith, Principal, susan@blueskystrategygroup.com ext. 221

  • Stuart McCarthy, Senior Vice President, stuart@blueskystrategygroup.com  ext. 225

  • Hon. Joe Jordan, Senior Associate, joe@blueskystrategygroup.com ext. 232

     

     

     

     

     

     

     

     

     

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