The Liberal government’s $101.4 billion new spend on COVID-relief and growth stimulus unveiled in the April 19 federal budget answers many questions posed last fall, but it still raises many concerns about its intent, timing, impact on economic growth, and the risky debt burden.
“They’re planning on government leading this recovery. They’re not looking for much support from the business sector,” Philip Cross, former chief economic analyst at Statistics Canada, told The Epoch Times.
The Macdonald-Laurier Institute senior fellow said there’s relatively little spending on growth initiatives for business and whatever stimulus there is is directed at households.
The feds’ new fiscal anchor aims to reduce federal debt as a share of the economy and eliminate COVID-19-related deficits. By the end of the budget’s projection period in 2025–26, federal debt-to-gross domestic product (GDP) is expected to settle at 49.2 percent. According to the budget, this debt burden is still the lowest among the G7 and an improvement from the projection of 49.6 percent in November’s fiscal update.
But Cross says we’ve become desensitized to government deficits as one of the pandemic’s long-term consequences, and it would be very dangerous if we felt that deficits no longer matter.
“Before the pandemic came along, people were wringing their hands about a $19 billion deficit,” he said. “A $30 billion deficit today looks like amazing restraint.”
The $19 billion deficit in 2017–18 came about after the Liberals blew through their election promise of no more than $10 billion. The government’s deficit for 2020–21 is $354.2 billion.
Hurdle for Child Care
A senior government official said at a media briefing that roughly $60 billion of the $101.4 billion is targeted for economic growth and jobs investment while roughly $30 billion is meant for COVID-related relief.
Ottawa aims to spend $101.4 billion over three years even as the economy is already forecast to grow by 5.8 percent in 2021 and by 4 percent in 2022, which would result in GDP being almost 2 percent higher than what was projected in November.
“I really believe that the greater danger today is not to invest in a stronger recovery from the COVID recession,” Finance Minister Chrystia Freeland told reporters during the budget embargo. She said the best way to deal with the debt is to invest in long-term growth.
The 724-page budget—the first in over two years—proposes a national child-care program costing $30 billion over the next five years and $8.3 billion on an ongoing basis, which the feds say is also a lever for raising the economy’s growth potential.
But the initiative depends on the feds working with the provinces, which don’t have money to spare, Cross says. So he doesn’t think the child-care initiative will get off the ground.
Business Debt Hampers Growth Incentives
The budget gears its support for business toward helping enterprises adopt new technologies. The compelling argument, according to the budget, is that “from 2002 to 2019, labour productivity in digitally intensive industries grew 3.5 times faster than in non-digitally intensive industries.”
As an incentive for private companies to increase business investment—a source of productivity that has significantly declined in recent years—the budget proposes to allow them to expense up to $1.5 million in eligible investments made between budget day and the end of 2023. This credit can be used for most depreciable assets like machinery, computers, software, and office equipment.
While not a tax cut, it will reduce federal revenues by $2.2 billion over five years starting in 2021–22, but how much small business can take advantage of it is an open question.
“While many may not yet be in a position to use it due to heavy debt loads, those that may be thinking of purchasing equipment or other capital may be more likely to move forward now with such a purchase which can help drive growth in the economy,” Corinne Pohlmann, senior VP of National Affairs with the Canadian Federation of Independent Business (CFIB), told The Epoch Times.
‘No Free Lunch’
The debt burden remains worrisome for business, even as it welcomes some of the new measures.
The CFIB said there were no measures to help address the $170,000 in COVID-related debt taken on by the average small business. But its president, Dan Kelly, called the Canada Recovery Hiring Program “a powerful tool” that will help firms bring back staff as the country moves into recovery.
Kelly added his voice to those who question the need for spending upwards of $100 billion, with the bulk of it not being COVID-related.
“We are concerned about the significant amount of non-COVID spending in this budget. Small business owners worry that today’s deficits will turn into tomorrow’s taxes,” Kelly said in a statement.
Canada’s Chamber of Commerce was pleased that the feds delivered on some of its proposals, including extending the wage and rent subsidies for business and providing leadership on reducing interprovincial trade barriers.
But the chamber expressed concern about inadequate deficit reduction and its dependence on meeting growth targets. The drivers of growth need to be handed off from government to the private sector, it said. Regarding child care, the chamber said supporting working mothers now with tax credits would be better than creating a national program.
The Business Council of Canada (BCC) praised the child-care initiative but pointed out that the federal debt is forecast to almost double to over $1.4 trillion by 2025–26—and that’s assuming interest rates don’t rise. The BCC said the budget falls short of being “a responsible … plan that avoids unnecessary new spending” and doesn’t go far enough to ease the public debt.
“Canadians know there’s no free lunch. You can’t borrow $100 billion over three years without imposing a significant burden on future taxpayers,” said BCC president and CEO Goldy Hyder in a statement.