Budget 2017: Ensight’s analysis on the Liberal’s 2017 federal budget

Ensight’s Don Newman provides his analysis on the 2017 Federal Budget following lockup in Ottawa.

Overview

After plenty of speculation, Finance Minister Bill Morneau tabled his second budget in the House of Commons this afternoon.

It was a budget heavy on details announcing the government’s long anticipated Infrastructure Bank, and with more substantive language surrounding innovation and clean technology.

As we approach the two-year mark of this Liberal government, the realities of deficit and fiscal management have begun to weigh heavily on the government’s ability to introduce new measures and strategies. These economic and fiscal circumstances have left Prime Minister Justin Trudeau and his cabinet in a difficult position, one which is made even more complex by the expectations the government has set for itself has set with regard to ‘delivering’ for the middle class.’

Still the government’s focus on key areas around skills training, innovation and infrastructure will undoubtedly play well with Canadians. And if you are eager for beneficial and substantive tax changes to policy, many pundits agree you will likely only have to wait until the Finance Minister’s fall Fiscal Update.

Given the uncertainty that exists south of the border, today’s budget marks a conservative, stay-the-course approach that expands on initiatives previously announced, particularly around infrastructure, skills training and innovation. Major changes to tax policy or with regard to the privatization of assets are not off the table, as the government does not want to limit its access to future revenues if necessary. However, Morneau has decided to keep those line items out of this budget, presumably because there will be more to announce in the fall, when there is a clearer sense of the direction the US economy takes.

Key Budget Themes

 

Infrastructure

After announcing that Canada would establish its own Infrastructure Bank in his 2016 fall economic update, Finance Minister Bill Morneau followed through today with the government’s plan to establish the arms’ length bank, which it plans to see begin operations by late 2017. Morneau’s budget announced that the selection of a CEO to run the bank will begin shortly, and confirmed that the bank is expected to invest 35 billion in Canadian infrastructure projects over 11 years. Of that amount, $5 million will be invested in green infrastructure projects aimed at reducing greenhouse gas emissions, improving air quality and water systems, and promoting renewable power. Another $5 million will be earmarked for public transit and transportation projects. Morneau also announced that Canada Infrastructure Bank will be data-driven, and create partnerships with provinces, territories, municipalities and Statistics Canada to improve decision-making capacity.

Skills

Budget 2017 introduces the “Innovation and Skills Plan” which is focused on creating centres for innovation and creating good and well-paying jobs that would strengthen the middle class. The plan targets the areas of advanced manufacturing, agri-food, clean technology, digital industries, health/bio-sciences and clean resources. The plan also sets targets to grow Canada’s good and services, increase the clean technology sector, double the number of the high-growth companies in Canada and expand the level of support for job training under the Labour Market Transfer Agreements.

innovation

The Liberal government followed through on its commitment of a $950 million investment in industry-led super clusters in sectors such as manufacturing, agri-food, clean technology, digital technology, health and bio-sciences, infrastructure and transportation.

Government envisions the super clusters as virtual centres of collaboration between researchers and industry in the hopes of boosting capacity for commercialization of new products and services while building Canada’s competitive advantage on a global scale. The government is wagering that the end result will be a more diverse and deep talent pool for Canadian industry, better opportunities to connect from business-to-business, new risk-sharing opportunities and new entryways into global supply chains.

Finally, the Liberal government also announced a new $1.26 billion five-year Strategic Innovation Fund that is intended to consolidate and streamline existing business innovation programming in the aerospace, automotive and technology sectors.

Clean Technologies

Another important element of the Liberal plan related to both climate issues and economic growth was also delivered in Budget 2017. The Liberal government has provided new clarity on how it would deliver support to Canada’s growing clean tech sector, namely through the Business Development Bank of Canada, Export Development Canada and the Department of Natural Resources. That support will include $380 million in equity investments over three years delivered through Business Development Bank of Canada to help firms seeking to scale their technology and business. Another $570 million in working capital was also committed over three years to help clean tech firms looking to make investment in assets, inventory, talent and market expansion. And for “first-of-its-kind, high-capital-intensive, early commercial-scale clean technology,” government has earmarked $450 million for high-capital-intensive clean technology companies. Natural Resources Canada will also gain an added $229 million in 2017-2018 to support R & D initiatives while another $200 million will be entrusted to NRCAN, Fisheries and Oceans Canada and Agriculture and Agrifood Canada to invest in clean tech in natural resource sectors.

taxes

Budget 2017 takes measures to ensure that the tax system is fair for all Canadians by closing loopholes, cracking down on evasion and eliminated items that favour the wealthy. The government will invest an additional $523.9 million—over five years—to prevent tax evasion and improve tax compliance. The Government is also committed to undertake a wide-ranging review of tax expenditures and will make changes to simplify the tax system and make existing tax relief for individuals and families more effective and accessible. EI premiums will also increase by about $25 per year for Canadians earning up to $51,300. Finally, the government will take steps to maintain the resiliency of the financial sector.

trade

The Budget takes steps to ensure that products and people move quickly. As announced in the 2016 Fall Economic Statement, the Government is investing $10.1 billion over 11 years in trade and transportation projects. This investment will build stronger, more efficient transportation corridors to international markets and help Canadian businesses compete, grow and create more jobs for Canada’s middle class. A new Trade and Transportation Corridor Initiative will help to improve the quality of trade infrastructure across Canada—from border crossings in the south to airports in the north. This Corridors Initiative will prioritize investments that address congestion and bottlenecks along vital corridors, and around transportation hubs and ports providing access to world markets.

transport

Budget 2017 provides $229 million over four years, starting in 2018-2019 to Natural Resources Canada and Transport Canada for clean transportation innovation and programming.  It also creates a $10.1 billion Trade and Transportation Corridors Initiative that will invest in gateways and ports.  A further $50 million will go to Transportation Canada to enhance the collection and analysis of transportation and trade-related data in order to assist targeted investments, support innovation and track results.

debt

After accounting for Budget 2017 proposals, the budgetary balance is expected to show deficits of $23.0 billion in 2016–17 and $28.5 billion in 2017–18. Over the remainder of the forecast horizon, deficits are expected to decline gradually from $27.4 billion in 2018–19 to $18.8 billion in 2021 –22. The federal debt-to-GDP ratio is projected to decline gradually after 201 8–19 to the end of the fiscal horizon, reaching 30.9 per cent in 2021 –22.

Next Steps

Budget 2017 now sets the stage for the Liberals’ second year in office and as we draw close to the two year anniversary, this is also a Government that needs to build a firm foundation so that they can quickly pivot to ensuring that they are well positioned to win re-election in 2019.

As Ministers and MPs alike fan out across the country to promote this Budget, they will be asking Canadians to trust their stay-the-course budget and hope that they announced enough measures to keep the hungry electorate at bay.