Budget 2021: Government unveils $101.4B in new spending, with deficit declining
OTTAWA -- The federal government is unveiling $101.4 billion in new spending, aimed at both supporting the country through the third COVID-19 wave, and stimulating the economic recovery post-pandemic, in a historic budget presented by Deputy Prime Minister and Finance Minister Chrystia Freeland.
From extending pandemic business and health supports, to putting $30 billion towards a national child-care plan, increasing the federal minimum wage, and promising $17.6 billion for green investments, Monday’s federal budget outlines how the federal Liberals propose to rebuild the Canadian economy in a way that “brings all Canadians along.”
The budget— titled “A Recovery Plan for Jobs, Growth, and Resilience”— shows that the federal deficit is projected to sit at $354.2 billion for the year that just ended, with it slated to drop to $154.7 billion in the current 2021-22 fiscal year.
The government attributes a “stronger-than-expected” economic recovery already taking shape globally as the cause for the declining deficit figures, though the deficit will continue to be sizable for years to come as the government follows through on big spending plans.
Freeland is pushing ahead with stimulus, planning to spend 4.2 per cent of Canada’s GDP over the next three years to foster the rebound out of the recession.
“This budget is a smart, responsible, ambitious plan for jobs and growth, that is designed precisely to heal the specific wounds of the COVID-19 recession and to permanently strengthen Canada’s economic muscle,” Freeland said during a press conference under embargo as part of the virtual lockup.
Organized by the federal finance department, the budget lockup allowed news bureaus and those working from home to access the budget documents and experts remotely, rather than holding the traditional in-person gathering in Ottawa, which was not possible given the current COVID-19 public health restrictions.
After a historic economic contraction due to COVID-19-prompted shutdowns that forced record spending and exposed gaps in Canadian society that have left women, low-wage workers, young people, and racialized Canadians the most deeply impacted, Freeland’s first federal budget proposes a series of new measures meant to address inequity and create new employment opportunities.
“It’s a big budget,” Institute of Fiscal Studies and Democracy President and former parliamentary budget officer Kevin Page told CTV News, noting that the hundreds of measures promised within it appear poised to take into a fall election. “There is an enormous amount of deficit spending over the next six years… A lot of that is paid for by this rosier economic outlook.”
When Freeland tabled the budget in the House of Commons and delivered her first budget day speech as finance minister, she made history as the first woman to do so.
“Opportunity is coming. Growth is coming. Jobs are coming… Canadians are ready to recover,” Freeland said in her budget speech. “We will come roaring back.”
ADDED COVID-19 SUPPORT
With variants of concern spreading and COVID-19 case counts on the rise once again in Canada, the government says its top priority remains keeping Canadians health and safe, and notes that the path forward will be altered by how effective the country is at controlling the virus and vaccinating people.
The 2021 federal budget outlines a $12 billion plan to extend key COVID-19 business aid programs and commits to continue other income support measures, while plotting out the reopening of society and international borders.
The government is also planning to extend the federal wage and rent subsidies and lockdown supports. Set to expire in June, the supports will now be available through September, as well the Canada Recovery Benefit aimed at people who aren’t covered by employment insurance (EI), though the $500-a-week support will drop to $300 per week after July 17.
Billions more is being earmarked to support affected workers though a range of steps, including a series of changes to the EI program, which includes extending the EI sickness benefit from 15 to 26 weeks and continuing to offer COVID-19-prompted caregiving supports in the short-term.
The Liberals have signalled that they also intend embark on a $3.9 billion endeavour to reform EI and make it more accessible and streamlined.
In a chapter focused on “finishing the fight” against COVID-19, the Liberals are also committing to spend:
- $3 billion over five years, starting in 2022-23 to support the provinces and territories in creating and upholding high standards of care inside long-term care facilities;
- $2.2 billion over the next seven years on boosting Canada’s biomedical and life sciences research sector to in part increase vaccine development;
- $424 million in 2021-22 to ensure the “safe reopening” of Canada’s borders, through funding further air travel protections and mandatory quarantine measures;
- $100 million over the next three years, to support projects for mental health interventions for populations disproportionately impacted by COVID-19, such as health care and front-line workers; and
- $41.3 million over six years starting in 2021-22, for Statistics Canada to improve data infrastructure and data collection.
And while the ongoing global health crisis continues to put a microscope on the state of the country’s health-care system, the promise for universal pharmacare is only mentioned briefly, restating the existing commitment but offering no new funding or a timeline to see it become a reality.
CHILD CARE, WAGE HIKE
First promised in the fall fiscal snapshot, and billed as a centrepiece of economic stimulus plan and a measure to counteract the effects of the “she-cession” by increasing women’s participation in the workforce, the government is moving ahead with its promise to create a national child-care program in co-operation with the provinces and territories.
With an emphasis on creating new spaces at an accessible price point, the government is setting aside $30 billion over the next five years with permanent ongoing funding to enact the national plan and create more spaces, including for Indigenous families and children with disabilities.
The government’s aim is to reduce the cost for regulated early learning and child care by 50 per cent by the end of 2022, with the goal of reaching an average cost of $10 per day by 2026, everywhere outside of Quebec, as the government says it is “time for the rest of Canada to learn from Quebec’s example.”
“This is an economic issue as much as it is a social issue. Child care is essential social infrastructure. It is the care work that is the backbone of our economy. Just as roads and transit support our economic growth, so too does child care,” reads Freeland’s budget.
Freeland is also planning to bring forward legislation to establish a $15-an-hour federal minimum wage, rising with inflation. The minimum wage would stay higher in provinces where the hourly rate is already above $15 per hour, and the government estimates this will help more than 26,000 workers in the federally regulated private sector.
The government is also promising to:
- Extend the waiver on interest on federal student loans through to March 2023; and
- Increase Old Age Security for seniors ages 75 and older, providing up to $766 more for eligible seniors in the first year; and
- Spend $18 billion over the next five years in an effort to close the gaps between Indigenous and non-Indigenous people.
While Freeland—who is making history as the first federal female finance minister—has promised to take seriously the economic effects women are disproportionately experiencing amid the pandemic coined as the “she-cession,” the budget only references the phrase three times.
Defending her economic approach, Freeland pointed to the child-care system, calling it a “transformational social investment, and a transformational economic investment,” that will help make it possible for parents, especially women to participate in the labour force, adding that there are other targeted initiatives for women entrepreneurs and low-wage families “that will help women, too,” Freeland said.
EMPLOYER, SECTOR AID
Still recovering from dire unemployment levels, the 2021 federal budget promises to create 500,000 new training and work opportunities over the next five years, and sets aside billions in new spending aimed at fostering innovation.
There are several streams through which the government intends to meet this goal, such as student placements, apprenticeships, skills training or re-tooling, and other workforce programs including the “Sectoral Workforce Solutions Program” aimed at helping fill in-demand jobs like personal support workers, and in constructions sectors.
The government will also be launching a new “Canada Recovery Hiring Program” that will run from June to November and act as a transition from the federal wage subsidy for hard-hit industries.
This short-term program will be available to Canadian-controlled private corporations, small businesses, charities and non-profits that are looking to hire workers in the coming months and the economy begins reopening.
The government has set aside $595 million for this hiring program and each eligible employee would be subject to a maximum of $1,129 remuneration per week over a four-week period. It can be used for both new workers and rehiring laid-off staff, but would not be available to employees who have been furloughed.
Budget 2021 proposes to expand the Canada Workers Benefit—a refundable tax credit for people with low annual incomes—by $8.9 billion over the next six years. The government expects this will make one million more Canadians eligible and incentivize second earners to return to the workforce by raising the income level at which the benefit starts being reduced to $22,944 for single individuals without children.
The Liberals are also:
- Earmarking $214 million in the next year, as part of an overall allocation of $921 million over the next five years to help entrepreneurs, including dedicated funding for women and racialized entrepreneurs;
- Making $50 million available on a cash basis over the next five years for entrepreneurs to have increased access to venture capital; and
- Creating a “Canada Digital Adoption Program” to help 160,000 businesses with the cost of new technology and provide them with the help of young Canadians who will be trained to help set up new e-commerce opportunities.
The government is projecting that the unemployment rate will decline from its peak of 9.6 per cent in 2020, to 8 per cent in 2021, and become lower over time.
A GREEN RECOVERY
“Climate change is real.” That’s the first line of the federal government’s chapter on how the government intends to focus on projects to help reduce Canada’s carbon emissions as a key way to rebuild the economy while also hitting the target of reaching net-zero emissions by 2050.
The government says it plans to put $17.6 billion into investments towards a green recovery and a clean economy.
- A plan to launch in the coming months a federal green bond framework allowing investors to help finance Canada’s climate change initiatives;
- $4.4 billion over the next five years to offer interest-free loans of up to $40,000 for environmentally-friendly home retrofit projects; and
- Setting up a system to reduce by 50 per cent the general corporate and small business income tax rates for businesses that manufacture zero emission technologies, effective in 2022.
Freeland also plans to put another $7.2 billion into the Strategic Innovation Fund starting now and continuing for seven years, including specific amounts to go into projects within the life sciences, automotive, aerospace, and agriculture sectors. Of this, $5 billion will be funnelled towards the fund’s Net Zero Accelerator, which supports projects to help reduce domestic greenhouse gas emissions.
The objectives of this massive spending is to support projects that help decarbonize heavy industry and support sectors transforming to be sustainable long-term.
NEW TAXES, FISCAL ANCHOR
The 2021 federal budget is the first that the government has issued since 2019, and the more than-700 page document offers an updated full picture of the state of the country’s finances.
The 2020-21 deficit has come in at $354.2 billion, below both the $381.6-billion figure the government projected in its fall economic update, and the $363.4-billion deficit that the Parliamentary Budget Officer had forecast.
However, Monday’s budget shows deficit projections through to 2026 that are higher than what was forecast in the fall economic statement, with a deficit of $59.7 billion in the 2022-23 fiscal year; a deficit of $51.0 billion 2023-24; a deficit of $35.8 billion 2024-25; and a deficit of $30.7 billion in the fiscal year ending in 2026.
While balancing the books and eliminating the deficit is not forecast to happen in the next five years, responding to calls from economists and other financial insiders for the Liberals to outline what the path towards more fiscal restraint will look like, the budget does set out a new fiscal anchor.
Billed as a “prudent” approach by a senior government official briefing reporters during the budget lockup the Liberals continue to point to the debt-to-GDP ratio—which measures the size of the deficit in relation to the economy—as a key economic indicator.
The federal debt-to-GDP ratio is expected to peak in 2021-22 at 51.2 per cent, and is expected to fall to 49.2 per cent by 2025-26, which is the same year that the deficit will reach 1.1. per cent of GDP.
Some of the new ways the government will be looking to bring in new revenue streams include a promise to crack down on tax evasion as well as:
- A national tax on vacant property owned by non-Canadian, non-residents that’s estimated to bring in $700 million over four years, starting in 2022-23;
- A luxury tax on big-ticket items like high-priced cars and private aircraft with a sales price over $100,000 and for personal use boats that cost $250,000 or more. Coming into force this coming January, the government estimates this will bring in $604 million over five years; and
- Implementing a “Digital Services Tax” at a rate of three per cent on revenue from web giants that rely on Canadian content. It is estimated that this will raise $3.4 billion in revenue over the next five years, starting this year.
Freeland is also proposing to reduce the operating budgets of the departments and agencies with the highest historical travel costs, promising savings of $1.1 billion over five years, starting this year.
All of what is being presented Monday will be subject to days of debate in the House of Commons. If the Liberal minority government isn’t able to secure support from another major party, the government could fall within weeks, prompting a snap election, as the budget is considered a key matter of confidence.
Canadian Chamber of Commerce President and CEO Perrin Beatty said that in order for the Liberal growth strategy to work, the public investments will need to be met with private investments from businesses as well.
“Canada’s fiscal situation needed serious consideration as we begin to shift away from subsidies to economic growth. With so much pent-up demand on the horizon, avoiding structural deficits and fuelling private sector growth were the core building blocks businesses we’re looking for in this budget,” he said.
As stakeholder reaction poured in, opposition parties offered their reaction to the sizable and politically consequential roadmap to recovery.
Conservative Leader Erin O’Toole said he will talk with his caucus in the coming days about whether they’ll be voting for or against the budget, but he said with the NDP’s commitment to prop up the government so long as the pandemic is raging, the pressure is off his party somewhat.
O’Toole called the Liberals’ plan a “massive letdown” and an election-focused budget with no solid fiscal anchors, nor a plan to get Canada out of the pandemic. When asked what he did like about the budget, O’Toole said: “I’m glad we have one after two years,” and noted the milestone Freeland made on Monday.
In their immediate budget reactions, NDP Leader Jagmeet Singh, Bloc Quebecois Leader Yves-Francois Blanchet, and Green Party Leader all voiced concerns over what was missing from the budget, citing the absence of a wealth tax, major health care funding, and further supports for post-secondary students respectively.
“In a third wave with record numbers of cases, field hospitals being set up, people getting sick… it would be irresponsible for a leader at this time, at this stage of the pandemic, to in any way trigger an election,” Singh said.