Federal Budget 2023
 

On Tuesday, March 28, the Federal Government tabled a budget highlighting the government's main priorities for the upcoming year, including healthcare, affordability, and the environment. The Confidence and Supply Agreement played a crucial role in shaping the budget, with the most significant example being the introduction of the Canadian Dental Care Plan, which will cost $13 billion upfront and $4.4 billion ongoing.

While much of the healthcare spending was previously announced during the First Ministers' Meeting in February, securing funding for all provinces except Quebec and the territories is a significant achievement for the federal government. The measures aimed at improving affordability, such as targeting "junk fees" and introducing a GST rebate called a grocery rebate, is directed at providing relief to Canadians affected by inflation.

The government's commitment to the environment and green economy transformation was also evident in the budget, with a focus on clean tech manufacturing, clean electricity, and hydrogen. The introduction of investment tax credits and renewed programs aims to maintain investor confidence and encourage capital investment in Canada.

Healthcare:
The Canada Health Transfer will receive a $198.3 billion investment, with $46.2 billion in net new funding for provinces and territories. The investment includes $2 billion for pediatric hospitals and emergency and operating rooms, $2 billion for Indigenous health, $1.7 billion for wage increases for personal support workers, and $350 million for the Territorial Health Investment Fund.

The Canadian Dental Care Plan will receive a $13 billion investment over five years, including $4.4 billion ongoing. This plan includes $250 million for the Oral Health Access Fund and $23.1 million for Statistics Canada.

Affordability Measures:

A one-time $2.5 billion Grocery Rebate will provide targeted inflation relief for 11 million low-income Canadians.

Visa and MasterCard have committed to lowering credit card transaction fees for small businesses by up to 27%, saving them approximately $1 billion over five years.

The Canada Student Grant will increase by 40%, providing up to $4,200 to full-time students.

The maximum criminal interest rate will be reduced from 47% to 35% APR, and a consultation will be launched to explore the possibility of further reducing the rate.

The Tax-Free First Home Savings Account will be available starting April 1, 2023.

The government will work with regulatory agencies, provinces, and territories to reduce junk fees, such as telecom roaming charges, event and concert fees, excessive baggage fees, and unjustified shipping and freight fees.

The government will enable two million more Canadians to participate in the File My Return program by 2025 and pilot a new automatic tax filing service to support vulnerable Canadians in accessing government benefits.

Clean Energy Transformation:

The government will introduce a 15% Investment Tax Credit (ITC) for eligible investments in non-emitting electricity generation systems, stationary electricity storage systems, and equipment for the transmission of electricity between provinces and territories.

The government will introduce an ITC ranging from 15-40% for eligible project costs, with the highest level of support going to the cleanest sources of hydrogen.

A 30% clean technology investment tax credit will be introduced to support investments in machinery and equipment used to manufacture or process key clean technologies, extract or recycle critical minerals, manufacture renewable or nuclear energy equipment, process or recycle nuclear fuels and heavy water, manufacture grid-scale electrical energy storage equipment, and manufacture zero-emission vehicles and upstream battery components.

The government has earmarked approximately $520 million over five years for Carbon Capture, Utilization and Storage (CCUS) projects and will release a legislative proposal for consultation in the coming months.

The Canada Infrastructure Bank will invest $10 billion in Clean Power and $10 billion in Green Infrastructure projects from existing resources.

The government will spend $3 billion over 13 years to support clean energy projects, recapitalize funding for the Smart Renewables and Electrification Pathways Program, renew the Smart Grid program, and create new investments in science-based activities to help capitalize on Canada’s offshore wind potential.

The Public Sector Pension Investments Board (PSP Investments) will manage the assets of the Canada Growth Fund, which will include Carbon Contracts for Difference, to attract private capital to invest in the clean economy.

The Strategic Innovation Fund will receive $500 million over 10 years to attract business investment and the development of clean technologies, and the government will engage with the biofuel industry to explore opportunities to promote its growth.

To support small business owners looking to exit their ownership, the government will introduce tax changes that will create Employee Ownership Trusts.

Other Significant Announcements:

The Canadian Space Agency will receive $1.1 billion over 14 years starting in 2023-24 to support Canada's participation in the International Space Station until 2030.

Analysis:

Despite Finance Minister Freeland's repeated message of fiscal restraint, total program spending has increased by $20 billion since Budget 2022, resulting in a $40.1 billion deficit. The government will need to be proactive in controlling the narrative around higher spending, with healthcare and measures aimed at supporting vulnerable Canadians most affected by inflation being the key political messaging the government will focus on in the coming weeks.

The Canadian budget for 2023 is being introduced during a challenging time. The pandemic is still having a negative impact on the economy, and geopolitical tensions are causing concerns about global supply chains. In addition, there are rising costs and affordability challenges for Canadian businesses and consumers. The Canadian economy is facing long-standing competitiveness and growth challenges as the world moves towards a net-zero economy. The combination of slowing growth and higher interest rates is creating new fiscal headwinds. All of these factors make it difficult to be a fiscal policymaker at this time.