Budget 2023 prioritizes pocketbook help and clean economy, deficit projected at $40.1B

In the 2023 federal budget, the government is unveiling continued deficit spending targeted at Canadians' pocketbooks, public health care, and the clean economy.

The federal deficit is projected to be $40.1 billion in 2023-24, nearly $10 billion more than forecast in last fall's economic snapshot. A slowing economy and new Liberal spending are behind this increase. 

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From affordability measures for low-income Canadians and funding the next phase of a national dental care program, to boutique tax tinkering, and a suite of green technology incentives, Tuesday's federal budget outlines the Liberals' plan to "do big things" while staring down a potential recession.

Deputy Prime Minister and Finance Minister Chrystia Freeland's budget outlines how the Liberals plan to spend nearly $70 billion more between now and 2027-28—with $59.5 billion rolling out over the next five years— while offsetting this with close to $25 billion in cuts and savings.

The budget— titled “A Made-in-Canada Plan”— shows that the federal deficit is projected to be $43 billion this fiscal year, and Freeland is no longer forecasting that federal coffers could be back in the black by 2027-28.

Instead, the deficit is set to gradually decline over the next five years but still sit at $14 billion in 2027-28.

"Budget 2023 comes at an important moment for our country—and at an important moment for the world. In the near-term, we must contend with a slowing global economy, elevated interest rates around the world, and inflation that is still too high," Freeland writes in the foreword to the budget, of which all 255 pages were tabled in the House of Commons on Tuesday. 

Speaking with reporters inside the budget lockup, Freeland acknowledged certain initiatives are "expensive" but said she is ready to "take on" anyone who questions the necessity of the spending outlined Tuesday.

Framing budget 2023 as a plan to strengthen the middle class, support an affordable economy, and generate a healthy future, the Liberals are presenting it as one about choosing how to move the dial on growth, without exacerbating inflation.

 

$2.5B

 

for a GST tax credit billed as a 'grocery rebate'

 

$46.2B

 

for federal-provincial-territorial health deals

 

$13B

 

for expanding the federal dental plan

 

2% cap

 

on incoming excise duty increase on alcohol

 

$19.87

 

coming increased traveller security fee for roundtrip domestic flights

 

$4.5B

 

for 30 per cent tax credit on clean tech manufacturing

 

$15.4B

 

in savings from public service spending cutbacks

With the state of the economy still shaky and eliminating the deficit off the table for now, the Liberals continue to hold on to Canada’s debt-to-GDP ratio as its key fiscal guardrail.  

"Fiscal restraint, I guess means different things to different people. We're still very much in the red in this in this budget," Fred O'Riordon, the national leader for tax policy at EY, told CTV News.

AFFORDABILITY AND HEALTH MEASURES, TRAVELLER FEE

As signalled ahead of the budget's release, the federal government is introducing a one-time “grocery rebate” that will cost $2.5 billion to help 11 million low- and modest-income Canadians pay their bills.

Not required to be spent at the grocery store, the rebate is being offered through the GST tax credit system and would see eligible couples with two children receive a payment of up to $467. A senior would receive $225, while a single person would receive $234.

The budget also includes the federal government's commitment to spend $46.2 billion more than previously earmarked for health care, as agreed to through deals with the provinces and territories in exchange for marked improvements to patient care and access.

Meeting a prescribed need per the Liberal-NDP confidence and supply agreement— albeit now with a higher price tag than initially billed—the budget includes $13 billion over five years and $4.4 billion ongoing to implement the more formalized "Canadian Dental Care Plan" to see eligibility expanded beyond children under age 12.

Connected to expanding coverage, the government also plans to spend $250 million over three years setting up an "Oral Health Access Fund" to address gaps in access for vulnerable populations and those living in rural and remote communities.

A few other health-focused measures are being highlighted in this budget, including:

• $45.9 million over four years to expand a budget 2022 initiative that offered a 50 per cent increase to the maximum loan forgiveness on Canada Student Loans for doctors and nurses working in underserved rural or remote communities;
• $158.4 million over three years to support the implementation and operation of the new 988 suicide prevention hotline championed by a Conservative MP; and
• $359.2 million over five years to combat the opioid crisis by renewing Canada's drug and substances strategy.

In the budget, the Liberals point to a suite of new air traveller-focused measures, including moving ahead with strengthening airline compensation obligations, and providing the Canadian Air Transport Security Authority (CATSA) $1.8B over five years to speed up processing times and strengthen security measures.

However, buried in the supplementary tax information, it appears that travellers are going to be paying for it through an increase to the Air Travellers Security Charge. For example, air passengers on a roundtrip domestic flight will pay $19.87, up from the current $14.96, and on international flights the rate will rise from $25.91 to $34.42. This security charge last increased in 2010.

Of note, the word "pharmacare" does not appear once in the document, and there's little new in this budget when it comes to new housing measures, beyond mentioning existing or ongoing efforts, and allocating $4 billion more for the Canada Mortgage and Housing Corporation "to implement a co-developed Urban, Rural, and Northern Indigenous Housing Strategy."

RELIEF THROUGH TAX AND POLICY CHANGES

Without further dipping into taxpayers' pockets to fund cost-of-living relief measures, the 2023 federal budget puts forward a number of policy and tax-tinkering efforts aimed at offering Canadians and businesses relief in other ways.

This includes cracking down on hidden or unexpected consumer fees known as "junk fees" that inflate the overall cost of a product or service, in partnership with regulators and provincial governments. Through this the Liberals say they will be going after telecom roaming charges, event and concert fees, excessive baggage fees, and unjustified shipping fees.

In a win for the beer, wine, and spirits lobby, the Liberals are moving to temporarily cap the planned April 1 increase to the excise duty on alcohol at two per cent, instead of the scheduled six per cent rise. This move will remain in effect for one year.

The federal government says it will also be amending the Criminal Code to stamp out predatory lending that targets Canadians in perilous financial situations with high interest rate loans, by lowering the amount of interest that can legally be charged, to 35 per cent.

For small businesses, this budget announces that after some work, the federal government has secured deals with Visa and MasterCard to lower credit card transaction fees, resulting in more than 90 per cent of businesses who accept credit cards seeing their interchange fees reduced by up to 27 per cent. This move is expected to save eligible mom-and-pop shops approximately $1 billion over five years.

There are a few policy changes aimed at students as well, including raising the interest-free Canada Student Loan limit from $210 to $300 per week of study and waiving the requirement for mature students to undergo credit screening to qualify for federal student loans and grants.

In a pair of moves that so far have no price tag but are meant to make everyday living a little easier, the budget also includes:

• A policy pledge to instill "a right to repair," making it more affordable for Canadians to repair rather than replace their home appliances and electronics; and
• Plans to explore imposing a standard USB charging port for cell phones, laptops and other electronic devices.

CLEAN ECONOMY AND BUSINESS INCENTIVES

Arguably the centrepiece in Tuesday's budget was the chapter on spurring economic growth in Canada's clean energy sectors, through investment tax credits, low-cost strategic financing, and targeted programs to spur growth in critical minerals and other key sectors such as electric vehicles.

This portion of the federal spending plan includes:

• A refundable 15 per cent clean electricity investment tax credit for investments in non-emitting electricity generation systems, and electricity storage or transmission, at a cost of $6.3 billion over 4 years;
• A refundable clean technology manufacturing tax credit equal to 30 per cent of the cost of investments in machinery used to manufacture or process clean technologies, at a cost of $4.5 billion over five years;
• A clean hydrogen investment tax credit first signalled in the 2022 fall update, with support ranging from 15 to 40 per cent of eligible project costs; and
• At least $20 billion coming from the Canada Infrastructure Bank to support building major clean electricity and clean growth infrastructure projects.

"In the months and years to come, we must seize the remarkable opportunities for Canada that are presented by two fundamental shifts in the global economy: the race to build the clean economies of the 21st century, and our allies’ accelerating efforts to friendshore their economies by building their critical supply chains through democracies like our own," reads Freeland's foreword.

Speaking with reporters, Freeland said the federal government views its approach to climate change and clean growth as a pyramid, with the price on carbon at the base, followed by the new tax incentives, concessional financing, and "bespoke" support for certain projects at the peak.

Overall, the government is expected to spend $80 billion over the next decade on clean economy-focused initiatives.

PROTECTING DIASPORA COMMUNITIES, ATHLETES

The budget also includes some smaller-ticket items indicating the Liberals are seeking to address some of the pressing stories that have been top of mind for Canadians since the last budget: foreign interference, abuse in sport, and a rise in online hate.

Over the next three years, the Liberals are planning to spend $48.9 million on protecting diaspora communities as well as Canadians from attempts by foreign states to interfere, threaten, and covertly influence individuals or institutions.

This money will be going to the RCMP to bolster its protections for those who face harassment and intimidation, increase its investigative capacity, and more proactively engage with targeted communities.

An additional $13.5 million will be spent over five years and then $3.1 million in following years to see Public Safety Canada establish a "National Counter-Foreign Interference Office."

The budget also promises $13.8 million for the Department of Canadian Heritage to ensure that Canadian sporting institutions are accountable for athletes' treatment and to support a sport system that promotes safety and well-being.

While online harms legislation is still being drafted, the Liberals will be rolling out a new "Action Plan to Combat Hate" that is coming with a $49.5 million boost to Public Safety Canada's coffers to allow it to expand its ability to respond to "the evolving security needs of communities."

FINDING SAVINGS, FISCAL ANCHOR

To offset some of the spending, the 2023 federal budget includes new ways the government is looking to cut back and generate revenue.

This includes "refocusing government spending" by reducing spending on consulting, professional services and travel by 15 per cent, resulting in $7.1 billion in savings over five years, starting in 2023-24 and then $1.7 billion ongoing.

Further, the budget proposes a three per cent reduction in spending by departments and agencies by 2026-27, bringing in an estimated $7 billion in unused federal funds.

The Liberals are pledging that this tightening of federal purse strings will not impact service delivery to Canadians nor the Canadian Armed Forces, though Crown corporations are being asked to seek similar spending reductions which the Liberals estimate could see $1.5 billion in savings.

In total, these measures are set to save $15.4 billion over the next five years.

Going after wealthier taxpayers in a move that will generate $3 billion in revenues over five years starting in 2024, the Liberals will be making legislative changes to raise the alternative minimum tax, or AMT rate, from 15 per cent to 20.5 per cent and "further limit the excessive use of tax preferences."

In addition to the new announcements, the massive economic document also offers an updated full picture of the state of the country’s finances that paints a less rosy picture than the fall economic statement, closer to the downside projections offered in November 2022.

While the economy is slowing, resulting in less GDP growth, the government is projecting a soft economic landing with a strong labour market and 830,000 more Canadians employed than before the pandemic.

Freeland said Tuesday that Canada's debt-to-GDP ration is still the lowest in the G7.

Canada’s debt as a percentage of the GDP is projected at 42.4 in 2022-23, up from the fall fiscal update figure, and it's set to further rise, hovering around 43 per cent over the next two fiscal years before declining.

The country's overall debt is set to rise to $1.31 trillion over the next five years, and with continued high interest rates, the federal government is projected to pay $43.9 billion next year just servicing Canada's debt. 

OPPOSITION PARTIES, STAKEHOLDERS REACT

As is the case in the immediate aftermath of any budget being tabled, the reaction was swift on Tuesday.

On Parliament Hill, opposition parties offered their perspectives on what Freeland has presented.

"I'm really proud that we were able to force this government to expand dental care, that's going to save money for families… It's the biggest expansion of our health-care system in a generation," said NDP Leader Jagmeet Singh. "We're also proud that we forced this government to save people money, put more money back in their pockets with the GST rebate… And... for the first time ever we’re able to connect government investments to good wages."

Ahead of the budget, Conservative Leader Pierre Poilievre had wanted the budget to cut taxes and spending, but after seeing what's been presented, he said his caucus will be voting against the "bonanza" of new "inflationary spending."

"Today's budget… is a full-frontal attack on the paycheques of hardworking Canadians," Poilievre said. "They have poured fuel on the inflationary fire. Low income, working-class people will suffer the most as a result of this costly, inflationary Liberal deficit."

Through statements and releases that poured into reporters' inboxes, industry groups offered their takes.

The Canadian Labour Congress said that the budget includes progress for workers and follows through on key commitments to the NDP, but "only scratches the surface" of other pressing crises.

"The government's move to attach strings to tax credits to ensure that investments in clean energy create good jobs is positive," said president of the Canadian Labour Congress Bea Bruske. "The affordability crisis means public programs like universal pharmacare and EI are more critical than ever. It is disappointing that the federal government continues to resist calls to implement a full pharmacare program and fix our inadequate EI system."

The Canadian Federation of Independent Business (CFIB) said the budget missed a chance to address post-pandemic small business debt and cost pressures, though the credit card fee reduction was a win.

"While CFIB is pleased that the government is capping the hike in excise duties on beer (and) spirits … we will continue to press government to end these automatic tax increases. Sadly, the government missed another opportunity to freeze the upcoming carbon tax hike on April 1, putting further cost pressures on small firms," CFIB president Kelly said.

And, the Canadian Chamber of Commerce sent a clear warning shot with its statement, saying plainly that it "won't close" Canada's economic growth gap.

"Today was an opportunity to lay out a clear plan for growth. While there are some positives, we still lack a coordinated strategy to generate that economic growth over the long term,” said the Chamber's president and CEO, Perrin Beatty.