Trudeau urged to focus on long-term growth in 2022 budget

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Prime Minister Justin Trudeau walks out of a building to speak to the media during his first availability after announcing he had COVID-19 at a location in the National Capital Region on January 31.Adrian Wyld/Associated Press

In a private video call this week with the prime minister, former Liberal cabinet minister Anne McLellan and Lisa Raitt, a Tory who has held senior cabinet posts, made their presentations.

With Budget 2022 on the horizon and the worst of the pandemic hopefully coming to an end, they told Justin Trudeau that Canada needed to look beyond the usual five-year timeline and aim for a long-term growth.

“They’ve lost the narrative, in my opinion, around economic growth and why all Canadians should care about it,” McLellan said in an interview this week after they met.

Ms. McLellan and Ms. Raitt now lead the Coalition for a Better Future. Originally supported by the Business Council of Canada, the now independent group has since grown to over 120 organizations which include a mix of business and civil society groups such as think tanks and individuals involved. in charitable, aboriginal and environmental causes.

Its message is simple, but precise: long-term economic growth that takes into account environmental and social concerns must be at the center of Canadian public policy.

Only then can the government meet the many pressing spending needs it will face over the coming decades, while managing the transition to a low-carbon economy and navigating its way out of from the mountain of debt accumulated during the pandemic.

“I’m not one to say, ‘Oh, don’t worry about the deficit and the debt.’ You absolutely must. And you have to worry about productivity, and you have to worry about investment,” Ms. McLellan said. “I would like to see a [growth] narrative in budget 2022. What is the narrative to get us to 2030 and net zero [emissions] in 2050 ?

The challenge for Finance Minister Chrystia Freeland, who officially launched the pre-budget public consultations this week, will be how to respond to these growing calls for a longer-term direction while tackling the serious economic challenges facing Canada. faced this year.

Dan Kelly, president of the Canadian Federation of Independent Business, agrees the government needs a better long-term plan.

“But my God, at least half of the small business community is stuck in crisis management right now,” he said. On Friday, Statistics Canada reported that the country cut around 200,000 jobs in January under Omicron restrictions, with accommodation and food services being the hardest hit.

Mr Kelly said these sectors will still need help this year, which he said could include government advertisements to alleviate the “fear factor” that will persist once authorities give the green light for life returns to a sense of normalcy.

“I fear that we abandon the program in the short term at our peril,” he said.

The House of Commons Finance Committee conducts its own budget consultations and has received over 400 written submissions to date.

Many of the submissions echo McLellan’s calls for long-term economic thinking. Companies and business groups are calling on the government to invest more in trade and transport infrastructure, which has been severely strained during the pandemic, to revamp research funding and intellectual property rules, and devote significant resources to pushing for a low-carbon economy. economy.

The Canadian economy has rebounded impressively since the start of the pandemic, with employment and GDP exceeding February 2020 levels in recent months. But optimism is tempered by soaring inflation, which hit a three-decade high in December, the Omicron Variant and continued supply chain constraints.

In the longer term, the challenges are daunting. The drive to achieve net zero emissions poses a dilemma for a major energy producer like Canada. A recent study by the Bank of Canada and the Office of the Superintendent of Financial Institutions looking at four different climate transition scenarios predicted that all would lead to a “significant” decline in GDP over the transition period, largely due to decline in global demand for Canadian products. oil.

Meanwhile, the country’s population is aging rapidly. The size of the labor force is shrinking while health and social spending is expected to soar. This emphasizes immigration and boosts productivity through training and increased private sector investment in machinery and technology – the latter being things Canada has struggled with for decades.

Former Bank of Canada Governor Stephen Poloz spent his career at the central bank and at Export Development Canada (EDC) thinking about long-term growth trends. He said in an interview that the best way for the government to boost Canada’s potential growth is to make a number of “inglorious” changes to existing programs or agencies, many of which would cost relatively little in terms of new spending.

On his short list: changing government procurement policy to support Canadian startups; having the Canada Infrastructure Bank guarantee financing for companies undertaking major infrastructure projects – like what EDC does for exporters; and the management of interprovincial trade barriers.

“It’s not glamorous to announce that you’re solving a whole bunch of little problems that will hopefully increase productivity, but I think that’s the kind of work that really should be done and it will have more impact. impact than a lofty announcement that takes then it will take you many years to actually be done,” Mr. Poloz said.

He gives high marks to the Liberal government for its subsidized child care program, which he says will boost labor force participation and pay for itself over time, as well as its $180 billion infrastructure plan launched in 2016. But he said the government could do a lot to improve business confidence and the investment climate.

“What we have is a very inefficient tax system, we haven’t done a decent review of that, it’s littered with special provisions. And we have a lack of clarity on our path as a nation to net emissions of carbon zero,” he said.

“Imagine if you are deciding whether you should make a big investment or not, and you are in an industry that will create emissions. … You don’t really know if you’re going to get your knees cut in five years, or if you’re going to be legitimately 20 to get it right.

Many pre-budget submissions contain requests for low-carbon initiatives. Manufacturers want to see an expansion of the Strategic Innovation Fund – the government’s main source of funding to subsidize big business. The fund now includes the Net Zero Accelerator, an $8 billion fund announced in 2020 that aims to help companies reduce emissions and invest in clean technology.

Automakers are calling on Ottawa to invest more in electric vehicle infrastructure, after announcing last year that all new passenger vehicles must be electric by 2035.

Meanwhile, oil and gas companies are seeking to clarify the carbon capture, use and storage tax credit, announced in last year’s budget. CCUS technology is still in its infancy, but is seen as a lifeline for energy companies as the price of carbon rises and other countries begin to introduce border tariffs tied to carbon emissions.

Canadian Manufacturers & Exporters, an industry group, put it succinctly in its brief: “This transition will be incredibly difficult and prohibitively expensive. This will only succeed with the right levels of investment and government support.

At a press conference this week, Ms Freeland said the government’s emphasis on a green transition will be part of its plan to work with the private sector to promote long-term growth.

She said the conversation on climate change must include a discussion of how emissions targets can be met while growing the economy.

“And then… when it comes to increasing the productive capacity of the economy, I absolutely think we have to look to innovation. I absolutely think we have to look at productivity. I absolutely think we need to look at business investment and increase business investment in Canada,” she said.

A senior government official stressed that Ottawa is still in listening mode over the next few weeks before landing on final budget decisions. The Globe and Mail does not identify the official because he was not authorized to comment publicly on budget considerations.

The official noted that there is still a high level of uncertainty about economic trends for the current year, such as whether the worst of the pandemic will continue to recede, the impact of planned interest rate hikes by the Bank of Canada, and military tensions between Russia and Ukraine.

There is less mystery about what a budget will contain when it comes first after an election campaign.

The Liberal Party’s 2021 election platform, which was released in September, contains a five-year budget plan costing all of the party’s spending and tax hike promises.

In total, the pledges amounted to about $78 billion in new spending and $25 billion in revenue from tax increases mostly aimed at the wealthy and big business.

Among other economic measures, the Liberals promised $2 billion for a new research institute modeled on the United States’ Defense Advanced Research Projects Agency, a 30% tax credit for investments in clean technologies and a $2 billion fund aimed at retraining oil and gas workers.

Ms. Freeland’s December 16 platform and mandate letter promised a permanent council of economic advisers. The government said the council will provide independent advice and policy options “on long-term economic growth that will help Canada achieve a higher standard of living, better quality of life, inclusive growth and a more innovative economy. and more competent. The council has not yet been launched.

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