Today, Deputy Prime Minister and Finance Minister the Hon. Chrystia Freeland Budget 2021: A Recovery Plan for Jobs, Growth, and Resilience. This is the first federal budget delivered in two years, outlining the Liberal Party’s vision for Canada’s COVID-recovery and laying the groundwork for sustainable growth. Budget 2021-22 is historic, as it is the first federal budget to be delivered by a female Minister of Finance. Budget 2021-22 forecasts a deficit of $354.2 billion for 2020-21, and a deficit of $154.7 billion for 2021-22.

Budget 2020-21 includes over 280 new initiatives, and details $101.4 billion in new stimulus spending, more than originally promised in the Fall Economic Statement (FES), aimed at both supporting the country through the third COVID-19 wave, and stimulating the economic recovery post-pandemic.

The Federal Deficit and Stimulus Spending

Set amidst a devastating third wave of the COVID-19 pandemic ravaging Canadian provinces – Ontario and Quebec in particular – and historic spending initiatives designed to combat the pandemic and kickstart our economic recovery, Budget 2021-22 forecasts a deficit of $354.2 billion for 2020-21, and a deficit of $154.7 billion for 2021-22. While the budget does not contain a clear fiscal anchor or path to balance, it expects federal debt to peak at 51.2% of GDP in 2021-22 before declining to 49.2% GDP in 2025-26. This includes total stimulus spending of 4.2% of GDP over the next three fiscal years.

In the FES, the government committed to spend between $70-100 billion over three years to stimulate the economy and support the COVID recovery. Budget 2021-22 goes beyond this previous funding commitment, committing over $101.4 billion in new stimulus spending on measures that advance key political priorities including a transition to a clean economy, supporting those who were disproportionately affected by the COVID economic downturn – most notably women. Most important among the spending is the creation of a $10-a-day national childcare program, to be cost-shared with provinces and territories. This has been well-received by the business community as a critical support for women, and as a measure to increase labour force participation and increase economic activity over the long-term. 

Key stimulus initiatives in Budget 2021-22 includes:

• $30 billion over 5 years to rollout a $10-a-day Canada-wide Early Learning and Child Care Plan by 2026,
• $17.6 billion toward a green recovery and shift to a clean economy,
• $2.5 billion over 7 years to create additional affordable housing units,
• $4.4 billion over 5 years to help homeowners complete deep home retrofits through interest-free loans worth up to $40,000,
• $2.3 billion over 5 years to support conservation of up to 1 million square kilometers of land and inland waters,
• $5 billion over 7 years to support the Net Zero Accelerator in building and securing Canada’s clean industrial advantage,
• $319 million over 7 years and the introduction of an investment tax credit to support investments, research and development in carbon capture, utilization, and storage,
• $4.1 billion to make postsecondary education more affordable, and
• $150.6 million over 2 years to support Indigenous students. 

COVID Subsidies and Healthcare

Budget 2021-22 does not strike any new long term financing agreements with the provinces to increase healthcare transfers. It does, however, provide for a one time top-up of the Canada Health Transfer. While the NDP have continued to demand a National Universal Single-Payer Pharmacare plan, and the Liberals have committed to advancing the conversation regarding pharmacare, Budget 2021-22 does not take specific action advance the pharmacare agenda.

Despite its release in the midst of a devastating third wave of the pandemic, Budget 2021-22 shockingly does not include any funding or measures to expand COVID testing capacity, or particularly rapid testing capacity.  

Budget 2021-22 takes critical steps to ensure that the COVID supports offered to businesses for wage and rent subsidies were used for their intended purposes only. Specifically, Budget 2021-22 includes a measure proposing that any publicly listed corporation receiving the wage subsidy and found to be paying its top executives more in 2021 than in 2019 will need to repay the equivalent in wage subsidy amounts received for any qualifying period starting after June 5, 2021 and until the end of the wage subsidy program. Budget 2021-22 also takes the next step to support the COVID recovery by establishing the Canada Recovery Hiring Program (CRHP), which will run from June to November with a mandate of helping the hardest-hit businesses pivot back to growth. It is designed similarly to the wage subsidy, with a subsidy available to businesses making it easier for them to hire back laid-off workers or bring new ones on.

Recognizing the need for continued supports for workers and businesses in response to the pandemic, Budget 2021-22 commits:

• $10.1 billion to extend the Canada Emergency Wage Subsidy (CEWS) until September 25, 2021 while gradually decreasing the subsidy rates,
• $1.9 billion to extend the Canadian Emergency Rent Subsidy (CERS) until September 25, 2021 while gradually decreasing the subsidy rates,
• To extend the application deadline for the Canada Emergency Bank Account (CEBA) which provides a $60,000 partially forgivable loan to small businesses, to June 30, 2021,
• $595 million to launch the Canada Recovery Hiring Program,
• $2.5 billion to extend the Canada Recovery Benefit, providing up to 12 additional weeks (up to a maximum of 50 weeks),
• $2.2 billion over 7 years to build domestic capacity in the life sciences sector, including:
  • $500 million for the Canada Foundation for Innovation,
  • $250 million for the federal research granting councils,
  • $59.2 million for the Vaccine and Infectious Disease Organization,
  • $1 billion for the Strategic Innovation Fund to support domestic life sciences and bio-manufacturing firms,
  • $250 million to support clinical research through Canadian Institutes of Health Research,
  • $50 million to create a life sciences stream in the Venture Capital Catalyst Initiative,
• $4 billion to support a one time top-up to the Canada Health Transfer,
• $1 billion through the Safe Long-Term Care Fund to protect and support seniors, and
• $3 billion over 5 years to support provinces on ensuring standards for long-term care are applied and permanent changes made.

New Tax Measures

While Budget 2021-22 did not bring forward major tax code changes for individuals, it does introduce several new tax measures, including:

• A 3% digital services tax on web giants that rely on data and content contributions from Canadian users
• A new luxury tax on cars and private aircraft valued at more than $100,000 and boats worth over $250,000 (RVs and snowmobiles exempt),
• A new 1% tax on vacant residential property owned by non-resident, non-Canadian owners that is considered to be vacant or underused, and
• Increasing excise duties on cigarettes by $4 per carton of 200 cigarettes.

Strengthening the Economy, Business and Jobs Supports

To support small businesses and fuel the recovery, jobs, and growth, Budget 2021-22 proposes:

• $470 million over 3 years to establish a new Apprenticeship Service,
• $560 million additional annual spending to enhance the Canada Small Business Financing Program,
• $500 million over two years to launch the Canada Community Revitalization Fund,
• To engage with all stakeholders toward reducing credit card interchange fees for merchants,
• $60 million over 2 years to further support the Innovation Supercluster Initiative,
• $721 million over 2 years to help connect students with employers through the Student Work Placement Program, Youth Employment and Skills Strategy, and Canada Summer Jobs Program, and
• To launch the Canada Digital Adoption Program, helping Canadian small businesses become more efficient, go digital, take advantage of e-commerce, and become more competitive in Canada and abroad.

Air Transportation, Tourism and Hospitality

Recognizing the decimation of the air transportation, tourism and hospitality industries due to the pandemic, Budget 2021-22 undertakes significant investments and measures to support the safe return of travel, and revitalization of the tourism industry – when it is safe to do so.  

To support the hard-hit air transport, tourism and hospitality industries and to jumpstart their recovery while strengthening measures to open borders, Budget 2021-22 commits:

• $82.5 million to support airports in adopting COVID testing infrastructure,
• $105.3 million over five years to collaborate with international partners and further advance the Known Traveller Digital Identity pilot project,
• $271.1 million to support CATSA to maintain enhanced COVID screening services, and
• $1 billion over three years to assist in the tourism sector’s recovery, including:
  • $200 million to support major festivals,
  • $200 million to support local festivals, community cultural events, outdoor theatre performances, heritage celebrations, local museums, amateur sport events, and more,
  • $100 million to support Destination Canada marketing campaigns in attracting foreign tourists,
  • $500 million to create the Tourism Relief Fund to support investments by local tourism businesses in adapting their products and services to public health measures and other investments that will help them recover from the pandemic, and
  • $80 million to kick-start local sports.

Social Policy Measures

To respond to immediate and ongoing challenges related to poverty, health and well-being, Budget 2021 introduces a number of new measures, including:

• $601.3 million to advance the National Action Plan to End Gender-Based Violence
• $45 million to increase accessibility to sexual and reproductive health care information and services for vulnerable populations
• Amending the Canada Labour Code to establish a $15/hour federal minimum wage
• Tackling the opioid crisis through support for innovative programs in harm reduction, treatment, and prevention
• Supporting a distinctions-based mental wellness strategy for Indigenous peoples
• Establishing a National Institute for Women’s Health Research

Cannabis

2021 represents the third year of cannabis legalization, bringing with it a mandated legislative review of the Cannabis Act, Budget 2021-22 offered no spending measures for the cannabis industry nor any positive regulatory developments for the industry. With legalization of cannabis for medicinal and adult-use recreational purposes advancing in several jurisdictions around the world – including Mexico with its population of over 125 million – this was a missed opportunity for Canada to capitalize on its first-mover advantage in the global market.

Opposition Reaction

Conservative Leader, and Leader of the Official Opposition Erin O’Toole was sharp in his critique that this is not a pandemic budget but rather an election budget, continuing with his assertions that Prime Minister Justin Trudeau’s priority is to trigger an election. Conservatives are particularly worried about the high levels of debt planned for the future and lack of a plan for facilitating economic activity through rapid testing and hastening of vaccine rollout, and supporting small business in the COVID recovery. For their part, the Conservatives have published their Canada Recovery Plan detailing how they would support our COVID recovery.

Bloc Quebecois (BQ) Leader Yves-Francois Blanchette called for greater federal support for provincial healthcare spending, and greater support for seniors. Blanchette stressed that there were not enough significant supports offered for seniors through an increase to the Old Age Security program, and through support for long term care facilities. Neither Blanchette nor BQ Finance Critic Gabriel Ste-Marie confirmed if the Bloc would vote in favour of the budget.

NDP Leader Jagmeet Singh Prior to the reading of Budget 2021-22, the NDP confirmed that given the minority parliament, it would be voting in favour of the budget to maintain the confidence of the government and avoid triggering a Spring election. This is a rarity, attributable to the ongoing 3rd wave of the pandemic that is ravaging several provinces, particularly Ontario. Still, the NDP shared their concerns that the budget did not include paid sick leave for essential workers, new taxes on the ultra rich, or a universal single-payer pharmacare system.

What’s Next?

While budgets are not necessary for the expenditure of money – estimates and associated appropriation bills provide Parliamentary approval of government spending – they serve an important purpose of communicating the government’s overall program plans and broader objectives. Considered a confidence measure, budgets are especially important in minority governments as a defeat of the budget would be considered a defeat of the confidence in government, leading to the dissolution of Parliament and a likely election. NDP Leader Jagmeet Singh has committed a number of times to supporting the budget to avoid a Spring election.

Still, political and industry stakeholders alike are preparing for a likely 2021 election. An April 13th federal public opinion poll conducted by Innovative Research Group firmly established that, if an election were held today, the governing Liberals would be in a position to form a majority government, with measured support for the federal political parties as follows: Liberal Party of Canada (39%), Conservative Party of Canada (27%), NDP (17%), Green Party (8%), Bloc Quebecois (4%), and People’s Party (4%). With the anticipated passage of the budget, all eyes will likely turn to Fall 2021 as a possible election timeframe. For its part, while the Liberal Party has been in election preparedness mode, the Liberal government has maintained it is not in favour of triggering an election any time soon and that it has a mandate from Canadians to see them through the pandemic.

With a federal election anticipated for this year, Budget 2021-22 is very much a pre-campaign platform, highlighting key demographics that the Liberals will try to appeal to in an election, through its support for women, low-wage workers, students and essential services workers.

With the budget now read, look for the Bank of Canada to make an announcement on interest rates, and Statistics Canada will make an announcement on its review of inflation. These will have additional implications for Canadian businesses.