2023 Federal Budget
RAPID POLICY UPDATE for the Ontario Chamber of Commerce
March 29, 2023
On March 28, 2023, the Government of Canada released its Budget: A Made-In-Canada Plan. The following is a summary of highlights from the perspective of Ontario’s business community.
Budget 2023 includes significant new funding and incentives to drive investments in the green economy. This includes:
- A 15 percent refundable tax credit for clean electricity investments, including:
- Non-emitting electricity generation systems (including large-scale nuclear and small modular reactors, wind, solar, and hydro);
- Abated natural gas-fired electricity generation;
- Stationary storage (including batteries and pumped hydro); and
- Equipment for transmission of electricity between provinces and territories.
- A 30 percent refundable tax credit for investments in new machinery and equipment used to manufacture or process clean technologies, and extract, process, or recycle critical minerals.
- A 15-40 percent tax credit for investments in clean hydrogen, with the projects that produce the cleanest hydrogen receiving the highest levels of support.
- An extension of the reduced corporate income tax rate for zero-emission technologies by three years and an expansion in eligibility to include nuclear technologies.
- $520 million over five years to enhance the Investment Tax Credit for Carbon Capture, Utilization, and Storage.
- At least $20 billion through the Canada Infrastructure Bank to support the building of major clean electricity and clean growth infrastructure projects.
- A commitment to release a concrete plan by the end of 2023 to improve the efficiency of the impact assessment and permitting processes for major projects, which will include clarifying and reducing timelines, mitigating inefficiencies, and improving engagement and partnerships.
- Consultations on the development of a broad-based approach to carbon contracts for difference to complement contracts for difference offered by the Canada Growth Fund.
- Consultations to grow the biofuels industry.
- $500 million over ten years to the Strategic Innovation Fund to support the development and application of clean technologies in Canada.
Building on its previous commitments around climate adaptation, Budget 2023 also proposes to provide $31.7 million over three years towards a low-cost flood insurance program aimed at protecting households at high risk of flooding and without access to adequate insurance, $15.3 million over three years to create an online portal where Canadians can access information on their flooding exposure and $48.1 million over five years to identify high-risk flood areas and implement a modernized Disaster Financial Assistance Arrangements program, which would incentivize mitigation efforts.
OCC analysis: Budget 2023 lays out Canada’s approach to staking its claim in the green economy as competition for capital intensifies, particularly in light of the US Inflation Reduction Act – which is recognized in the document and commits US $369 billion towards clean energy and climate provisions. Although Canada has a smaller market and pocketbook, the federal government is appropriately focused on incentivizing capital investments in areas where Canada has existing competitive advantages – such as clean electricity and carbon capture.
The OCC supports the largely technology agnostic eligibility criteria applied to the tax incentives, which will allow the private sector to innovate and invest in a variety of solutions, including the refurbishment of existing clean energy assets. Streamlining the impact assessment and permitting processes will be necessary to ensure Canadian projects remain competitive on the global stage. We also welcome the government’s decision to pursue broad-based contracts for difference, a critical tool that helps de-risk climate investments by backstopping the future price of carbon.
Meanwhile, investments in climate adaptation are equally important, as communities confront the growing risks and impacts of extreme weather events. We look forward to supporting the government as it implements its National Adaptation Strategy and develops a national flood insurance program.
Among the signature announcements in Budget 2023 is the implementation of the Canadian Dental Care Plan, which builds on the existing Canada Dental Benefit for children under 12-years-old. The Plan would include:
- $13 billion over five years and $4.4 billion ongoing to provide dental coverage for uninsured Canadians with an annual family income of less than $90,000 (with no co-pays for family incomes under $70,000), starting by the end of 2023.
- $250 million over three years and $75 million ongoing to establish an Oral Health Access Fund to help address oral health gaps among vulnerable populations and reduce barriers to accessing care, including in rural and remote communities.
- $23.1 million over two years to collect data on oral health and access to dental care to help inform the rollout of the Plan.
Budget 2023 also proposes some measures to address rising mental health and addictions challenges. To combat the opioid overdose crisis, the budget includes $359.2 million over five years, with $5.7 million ongoing and $1.3 million in remaining amortization, for a renewed Canadian Drugs and Substances Strategy, which would support community-based intervention and prevention programs, services, and evaluation, data collection, development of an overdose monitoring app for first responders, and ongoing action to stem the global flow of substances. Building on previous commitments to establish a suicide prevention and mental health crisis support line, Budget 2023 proposes $158.4 million over three years to implement and operate 988.
To encourage doctors and nurses to work in rural and remote communities, Budget 2023 proposes $45.9 million over four years, with $11.7 million ongoing to expand the Canada Student Loan Forgiveness program to more rural communities, including those with populations of 30,000 or fewer. Budget 2023 also proposes up to $50 million over five years to develop and test innovative solutions to strengthen the retirement savings of personal support workers without workplace retirement security coverage.
To support more equitable access to care across the country, Budget 2023 proposes $810.6 million over five years to support medical travel and to maintain medically necessary services through the Non-Insured Health Benefits Program, including mental health services, dental and vision care, and medications.
OCC analysis: Vulnerabilities in our health care system are impacting business confidence and economic growth. In light of ongoing backlogs, burnout, mental health challenges, and an aging population, a comprehensive, integrated health model is required to meet current and future health system pressures. Building on recent Canada Health Transfer (CHT) commitments, Budget 2023 includes an important focus on targeted health care supports, ensuring more equitable access to care across the country, and continued data collection to help inform program design, implementation, and evaluation.
The OCC welcomes the new Dental Care Plan and looks forward to reviewing eligibility details (to be released later this year). To ensure an effective and efficient rollout, we encourage the government to focus on filling existing coverage gaps, avoiding program duplication by leveraging the strengths of public and private system stakeholders, and ensuring an outcomes-oriented approach. We look forward to hearing about next steps on a national pharma care plan and rare disease strategy, as well.
Recognizing the focus on mental health through the recent CHT agreements, the OCC is pleased to see additional investments to address the opioid overdose crisis, which is increasingly devastating communities across the country, disproportionately impacting marginalized groups and certain industries, including construction.
While Budget 2023 includes some new investments toward health human resources (building on the CHT funding), in light of significant staff shortages and burnout, we would have liked to have seen a commitment toward a national licensure strategy to enable physicians and other health care professionals to work more seamlessly across jurisdictions. We also encourage the federal government to work closely with Ontario and other provinces on the development of retirement savings solutions for personal support workers without workplace coverage, which could complement Ontario’s forthcoming portable benefits program.
Workforce & Immigration
To support workforce development, Budget 2023 proposes to invest an additional $625 million in the Labour Market Transfer Agreements, which support a range of services, including skills training, on-site work experience, career counselling, and job search assistance. With respect to immigration, the budget proposes to provide $10 million over five years to implement biometrics to help expedite the processing of citizenship applications. This announcement builds on previous measures to increase immigration intakes and address the backlog in applications.
OCC analysis: Addressing Canada’s widespread labour shortages and building the skills needed for tomorrow’s economy will require strategic and coordinated commitments from governments, employers, and educational institutions. While the OCC welcomes the investments made in Budget 2023, we would encourage additional steps to further streamline recognition of foreign credentials for key sectors, make rural and Northern immigration pilots permanent, improve settlement services for newcomers, address administrative burdens around the Temporary Foreign Workers Program, review the National Occupation Classification Codes to create opportunities for permanent residence for labourers and operators, and increase the number of post-graduation work permits.
Building on previous commitments, Budget 2023 proposes $4 billion over seven years to implement a co-developed Urban, Rural, and Northern Indigenous Housing Strategy, plus an intention to reallocate National Housing Co-Investment Fund dollars from the repair stream to the new construction stream, as needed. Budget 2023 will also enable financial institutions to offer the previously announced Tax-Free First Home Savings Account, starting April 1, 2023.
OCC analysis: The OCC welcomes further investments toward an Urban, Rural, and Northern Indigenous Housing Strategy to meet the needs of the roughly 80 percent of Indigenous people living off-reserve across Canada, but recognize the need for significant additional support (the National Housing Council has identified the need for $56 billion over the next ten years). Access to affordable, culturally-supportive housing will help ensure Indigenous people are able to participate more fulsomely in the economy while reducing undue reliance on other costly services (e.g., health, justice, social services, etc.).
We also would have liked to have seen additional support for regional housing strategies and further investments through the National Housing Strategy for both the development and preservation of affordable housing options along the continuum, but look forward to the rollout of the recently announced Housing Accelerator Fund to support municipal housing development and complete communities. To meet the diverse, growing housing needs across the country (including the provincial target of building 1.5 million homes over the next 10 years), we encourage the federal government to take further action on skilled workforce development strategies and increased economic immigration to attract and retain workers to build the needed housing supply.
Infrastructure & Supply Chains
This year’s budget proposes several measures to strengthen domestic transportation systems and supply chain infrastructure, and support Canada’s National Supply Chain Strategy. This includes:
- $27.2 million over five years to establish a Transportation Supply Chain Office to respond to disruptions and better coordinate action with industry and other levels of government to increase the capacity, efficiency, and reliability of transportation supply chain infrastructure.
- Greater collaboration with Indigenous Peoples, industry, provinces, and territories to develop a long-term plan for our transportation infrastructure and the investments needed to support trade growth.
- $25 million over five years to develop transportation supply chain data to help reduce congestion, improve supply chain efficiency, and inform future infrastructure planning.
- Amendments to the Canada Transportation Act to provide the Minister of Transport with the authority to compel data sharing by shippers accessing federally regulated transportation services.
- Amendments to the Canada Transportation Act for a temporary extension, on a pilot basis, of the interswitching limit in the prairie provinces to strengthen rail competition.
- A review of the Shipping Conferences Exemption Act to improve marine shipping competition.
Budget 2023 also proposes to provide $210 million over five years to VIA Rail for the maintenance of its trains on routes outside the Québec City-Windsor Corridor and to maintain levels of service across its network. It also proposes to provide $10 million to top up the Local Food Infrastructure Fund to strengthen food security in Northern, rural, and Indigenous communities across Canada.
OCC analysis: Recent events, including the pandemic, flooding in British Columbia, and the Russia-Ukraine war, continue to demonstrate the urgent need to address underinvestments in transportation and supply chain infrastructure. The OCC is pleased to see movement on the National Supply Chain Strategy, with much-needed measures focused on building capacity, resilience, and efficiency and the collection of supply chain data. As the Government of Canada continues to tackle this issue, we would encourage further support for small- and medium-sized businesses to adopt technology that improves visibility across their supply chains and a systems-wide effort to digitize infrastructure.
Equally important to the efficient movement of goods is the efficient movement of people. We welcome the investments toward VIA Rail’s network and would encourage additional funding to expand the high-frequency rail network in Ontario to serve more Northern, rural, and Indigenous communities and promote greater trade and labour mobility.
Budget 2023 includes a number of measures to help advance economic reconciliation, including:
- $5 million to co-develop an Economic Reconciliation Framework with Indigenous partners that will increase economic opportunities for Indigenous Peoples, communities, and businesses.
- $8.7 million to support deeper engagements with Indigenous partners and rights-holders towards the development of the National Benefits-Sharing Framework.
- Enabling the Canada Infrastructure Bank (CIB) to provide loans to Indigenous communities to support them in purchasing equity stakes in infrastructure projects in which the CIB is also investing.
- $30 million over five years to enhance the Reserve Land and Environment Management Program to help develop First Nations’ capacity to exercise increased responsibility over their lands, resources, and environment.
- $35.3 million over three years to co-develop a new First Nations-led National Land Registry that will provide communities in First Nation Land Management with more opportunities to realize the economic benefits arising from local control over their lands.
- $19.4 million over five years for the Northern Participant Funding Program to increase the participation of Indigenous Peoples and other Northerners in environmental and regulatory assessments of major projects.
Budget 2023 also includes investments to accelerate the implementation of the Federal Pathway to Address Missing and Murdered Indigenous Women, Girls and 2SLGBTQQIA+ People, including for Indigenous-led projects for safer communities, enhanced victim and family support services, and oversight to track implementation and support next steps.
OCC analysis: As the youngest and fastest growing demographic in the country, Indigenous people are essential to addressing Canada’s labour market challenges and ensuring overall economic growth. Businesses are increasingly recognizing the value of working in true partnership with Indigenous communities and businesses and are seeking opportunities and support to do so. However, systemic barriers, including those outlined in the Truth and Reconciliation Commission and the National Inquiry into Missing and Murdered Indigenous Women and Girls, continue to pose significant challenges to equitable Indigenous economic participation.
In response to the important work of the National Indigenous Economic Strategy for Canada, the OCC welcomes new investments for an Economic Reconciliation Framework and a shift toward more equitable opportunities for Indigenous economic development, including through increased opportunities for benefits-sharing and equity ownership in major projects, capacity building, land management, and project oversight. While these are important steps, we also encourage the government to continue advancing economic reconciliation initiatives by committing to a five percent Indigenous procurement target for federal procurement activities, supporting Indigenous entrepreneurship (including by strengthening the capacity of Aboriginal Financial Institutions, enabling First Nations to mortgage property on-reserve, and removing other barriers to access capital), expanding opportunities for Indigenous equity ownership in major projects, and filling the Indigenous education gap.
Small Businesses & Entrepreneurs
Budget 2023 announces that Canada has secured commitments from Visa and Mastercard to lower credit card transaction fees for small businesses, while also protecting reward points for Canadian consumers offered by large banks. The budget also proposes to introduce tax changes to facilitate the creation of Employee Ownership Trusts.
OCC analysis: Lowering credit card transaction fees is expected to save small businesses approximately $1 billion over five years, at a time when inflation is contributing to record-low confidence among small businesses. Employee ownership trusts will be an important pathway to support small business owners with succession planning as Canada’s population ages. With many small businesses grappling with high debt loads and limited access to capital, the OCC would have liked to see additional supports targeted at the hardest-hit small businesses (e.g., forgiveness of CEBA loans and technology adoption programs).
Tourism & Travel
To advance the recovery and growth of Canada’s tourism industry, Budget 2023 proposes $108 million over three years for Regional Development Agencies to support communities, small businesses, and non-profit organizations in developing local projects and events; $50 million over three years to Destination Canada to attract major international conventions, conferences, and events to Canada; and $50.8 million over four years in forgone revenue to expand eligibility for the Electronic Travel Authorization Program to low-risk, trusted travelers from additional visa-required countries.
OCC analysis: Canada’s tourism industry was among the hardest hit by the pandemic, and is expected to be among the last to recover. Targeted funding for local projects and events, along with an expansion of the trusted traveller program, will help attract more visitors and build a stronger foundation for the sector’s long-term growth. We would also encourage the government to consider additional measures urgently needed to support the industry, including accelerating processing times for the Temporary Foreign Worker Program, increasing loan forgiveness amounts for businesses impacted by the pandemic, and funding the construction of a U.S. Pre-Clearance Facility at Billy Bishop Airport.
Other noteworthy announcements in Budget 2023 include:
- Capping the inflationary adjustment on the alcohol excise tax to 2 percent for one year, until April 2024.
- A one-time ‘grocery rebate’ (GST credit), providing $2.5 billion for targeted inflation relief for low- and modest-income Canadians.
- $108.6 million over three years to expand the College and Community Innovation Program to help more Canadian businesses access the expertise and research and development facilities they need.
- $368.4 million over three years to renew and update forest sector support, including for research and development, Indigenous and international leadership, and data. Of this amount, $30.1 million would be sourced from existing departmental resources.
- $333 million over ten years for a Dairy Innovation and Investment Fund to support investments in research and development of new products based on solids non-fat, a byproduct of the dairy industry.
- $13 million to Agriculture and Agri-Food Canada to increase the interest-free limit for loans under the Advance Payments Program.
OCC analysis: The government’s decision to cap the alcohol excise tax temporarily is a positive step, and the OCC would encourage a longer-term freeze of the tax rate to support struggling restaurants, bars and domestic alcohol producers as they recover from the pandemic. Canada’s new ‘grocery rebate’ is aptly targeted towards lower-income consumers amid high inflation this year. The expansion of the College and Community Innovation Program will be particularly helpful as business investments in R&D lag behind in Canada. Finally, we welcome the focus on innovation in forestry and agriculture as those industries look to become more competitive in the global market.
Budget 2023 looks to address various challenges related to the green economy, health care, infrastructure, economic reconciliation, and the high cost of living, culminating in a spending package of $497 billion earmarked for the next fiscal year alone.
Unlike the most recent fall update, which projected a budget balance by 2027-28, this year’s budget no longer provides a clear date or strategy for balancing the books. The Government of Canada now projects a budget deficit of $43 billion this fiscal year – higher than the $36.4 billion projected in the November 2022 fall economic statement, but lower than the $52.8 billion projected in last year’s budget. Forecasts also indicate deficits in the amount of $40.1 billion in 2023-24 and $14 billion by 2027-28.
Despite the larger deficit, Canada’s net deficit- and debt-to-GDP ratios (measures used to indicate the government’s debt burden in relation to its capacity to repay) are the lowest among G7 countries. Projections put the net debt-to-GDP ratio at 42.4 percent this fiscal year and 43.5 percent in 2024-25, before it tracks slightly downward in subsequent years to 39.9 percent by 2027-28.
The federal budget also projects the economy will see a shallow recession over the coming months, with real GDP estimated to contract by 0.4 percent. Relative to the strong economic growth of 3.4 percent witnessed last year, annual real GDP growth is anticipated to significantly decelerate to 0.3 percent in 2023 before rebounding to 1.5 per cent in 2024.
Positively, inflation continues to show signs of cooling in response to higher interest rates, decreasing to 5.2 percent year-over-year as of February, although this remains above the Bank of Canada’s target of 2 percent.
OCC analysis: Much like the rest of the world, Canada is facing a number of headwinds, including geopolitical uncertainty, pervasive labour shortages, high inflation, and fears of a recession. As such, investments focused on ensuring greater productivity and a resilient economy are critical for economic growth.
The budget targets much of its new spending towards supply-side measures that help avoid fueling inflation and provides much-needed support for households most impacted by the higher costs of living. It also seeks to offset some of this spending through internal savings and tax hikes aimed at Canadians with higher incomes and banks. While we welcome such measures and applaud the government’s efforts to promote economic growth, it will be important to pursue fiscal restraint where possible and outline a clear plan for achieving a balanced budget to protect against an uncertain economic outlook.
Budget 2023 did not make additional commitments to expedite immigration, address labour shortages, expand broadband, offer loan forgiveness for small businesses, revitalize the National Immunization Strategy, reform Employment Insurance and the federal tax system, or grow the cannabis sector,
Overall, despite a number of welcome pro-growth measures, Budget 2023 lacks a cohesive strategy for economic growth. More than ever, Canada needs a clear framework that will drive productivity and attract business investments in the face of major economic headwinds and competition with global peers. A pro-growth strategy must not only make targeted investments in key sectors, but also take bold steps to modernize the outdated regulatory, taxation, and policy barriers that stand in the way of growth.
For more details, refer to the Ontario Chamber of Commerce’s 2023 federal budget submission.