On April 19, the Government tabled the first federal budget in over two years. With hundreds of millions in spending and unprecedented deficit and debt levels, this budget is both a hit and a miss.
A national budget must do two things. It must address immediate short-term issues while also positioning for and protecting long-term growth. Recognizing the challenges of COVID 19 and the continued need for emergency relief, the 2021 federal budget provides appropriate short-term support for individuals, small businesses and some drastically affected industry sectors. These entitlement programs drive private consumption allowing for citizens to weather the current emergency, but for a vibrant economy they can’t exist in isolation. Without substantial core investments to support the backbone of an economy no future prosperity will be built.
Unfortunately, with respect to the more difficult task of establishing and bolstering these economic foundations this budget falls short.
Grave cracks in Canada’s competitiveness and productivity predate the pandemic. Foreign capital investment was leaving Canada in disturbing amounts and national security tariffs, non –tariff trade barriers, and complex regulatory and tax frameworks were driving companies to move assembly lines and jobs to other jurisdictions.
For some time, in response to changes in the global economic balance of power, countries around the world have charted a course away from globalization, and placed a greater emphasis on national capability, self-sufficiency, and security. Since the health and economic shock of COVID 19 this trend has accelerated. The resulting shortages of personal protective equipment, vaccines, other medical supplies as well as many other essential consumer goods, has further illustrated the vulnerabilities in the Canadian economic framework.
The budget was largely silent on measures to address these pre and post pandemic economic foundation cracks. There was no mention of comprehensive personal and corporate tax reform or regulatory rationalization to improve Canada’s competitiveness.
Investment in critical domestic industries such as PPE, vaccine manufacturing, and medical research was limited, and lacks the creation of domestic manufacturing capability. In order to bolster Canada’s self sufficiency and ensure greater longer-term health security, Canada must not only address the current lack of supply but also plan for the future.
Pandemic lockdowns have accelerated the transition to greater dependence on digital information. Canada’s lack of a universally accessible, leading edge and secure digital infrastructure is leaving the entire country at a distinct disadvantage. The budget investments are insufficient to mitigate the nation’s susceptibility to cyber-attacks and internet fraud or to allow the country to achieve digital access and information security.
Additionally, despite the looming shutdown of Enbridge Line 5 threatening critical supply to Ontario, Quebec and the Maritimes, there was no mention of Canada’s energy future. Canada’s oil and gas industry while meeting the highest environmental standards in the world, remains vulnerable to decisions of foreign oil suppliers. The budget did nothing to reduce Canada’s dependence on dirtier foreign oil to achieve both climate change goals and domestic energy security simultaneously.
Lastly there were no concrete measures or “fiscal anchors” to address the country’s staggering deficit and debt. The deficit is forecasted to hit a whopping $388.7 Billion or 17% of GDP in 2021, while the debt will exceed $2 Trillion. At that level Justin Trudeau will have incurred more cumulative debt than all 22 Prime Ministers before him.
Worse still, this budget has overestimated economic growth by failing to adequately account for the impact of government stimulus and a disproportionately high housing market on GDP. If government handouts in 2020 were removed from the calculations the economy would have shrunk by 15.3% to its lowest level in seven years. Ultra low interest rates, easy access to credit and a shift to work from home has resulted in the housing share of GDP reaching a record high, offsetting losses in many other areas. The government’s statement that the economy will come roaring back fails to note that without stimulus and a red-hot housing market the economy is on life support.
Immense spending with large amounts of debt, will jeopardize Canada’s future prosperity and leave a sky-high debt burden for generations to come. Core foundational investments and a clear eyed view of the state of the economy are critical to protecting the health, and economic security of all Canadians. Economic recovery and Canada’s future prosperity can not be achieved without them.