PIPSC Economist, Ryan Campbell, brings us the 5 takeaways from Minister of Finance Chrystia Freeland’s 2020 fiscal update delivered on Monday, Nov. 30, 2020.
1. Public-sector science is integral
The government’s top priority remains a science-driven approach to containing COVID-19 and protecting Canadians. In this Fall Economic Statement, the federal government has provided $565 million for COVID-19 testing supplies and the distribution of rapid coronavirus tests.
Canadians are eager to have access to a safe and effective vaccine and the lack of domestic production has been identified as a weakness. This Fall Economic Statement didn’t answer all questions about the speed and efficacy of vaccination efforts in Canada but it did take steps to ramp up domestic production. The National Research Council will be part of the solution – they’re allotted $126 million over six years to produce 2 million vaccine doses per month at the Human Health Therapeutics Research Centre. The public service remains at the centre of the federal government's pandemic response, led by Health Canada and the Public Health Agency.
2. No signs of austerity and a foundation has been laid for a green recovery
We can be thankful the government was not spooked by false threats from deficit alarmists. Yes, the deficit projection for 2020-21 has increased to $382 billion, a scale of spending not seen since WWII. But, this projection also showed the deficit has a natural downward trajectory, dropping, without any mention of austerity, to $121 billion next year and $51 billion in 2022-23.
As the health threat subsides, the need for government spending will go down as well. Even after this historically bad year, Canada’s debt is expected to remain less than half of the average debt in other G20 countries. Moderate debt levels and historically low-interest rates have made it easier for the government to fight the virus and repair the economic damage without financial constraints.
Investing remains the correct course of action to support our economy in these unprecedented times. This is especially true as the COVID-19 and climate crises converge. In this Fall Economic Statement, the federal government committed to prolonged stimulus spending even after the virus is overcome – committing to allocate 3-4% of GDP per year between 2021-24. This spending is over and above the $2.6 billion for green retrofits and $150 million for zero-emission vehicle infrastructure also announced. Spending is crucial to repair economic scarring resulting from the recent shocks and GHG emission reduction targets must continue to go hand-in-hand with the investment in job creation.
3. Tax fairness signals were sent, but more substance will be required
The federal government announced the intention to simplify the home office expense deduction for the first $400 claimed. This seems like a positive move but full details have not been released yet. We will provide an update as soon as we have all the information.
As of July 2021, foreign tech and e-commerce companies will have stricter requirements to charge Canadian customers GST/HST. Up until now, Canadian counterparts were at a competitive disadvantage because they always had to add these charges. This common-sense adjustment is welcomed but long overdue. CRA professionals and other advocates for tax fairness have been recommending this change for years.
Slow but tangible steps were taken to close the stock options loophole – a deduction that acts as a subsidy for the wealthy. The Fall Economic Statement also announced the federal government’s intention to modernize the General Anti-Avoidance Rule (GAAR) and committed $606 million over 5 years in additional spending at the Canada Revenue Agency to curb international tax evasion and aggressive tax avoidance.
All together, tax-fairness announcements are expected to yield $2 billion per year in additional revenue. These changes are positive but represent the lowest of the low-hanging fruit. The government must now turn its focus to the super-wealthy and multinational corporations that hide their profits outside of Canada.
4. NAV CANADA and the commercial airline industry need support
Health threats and travel restrictions have wreaked havoc on the commercial airline industry through the pandemic. In the Fall Economic Statement, the federal government committed significant resources to airports and regional service providers. It also provided loans to other impacted sectors through the Highly Affected Sectors Credit Availability Program.
There was no mention of a final deal for commercial airlines, Negotiations are ongoing but this stands out as a glaring omission. NAV CANADA is a private, not-for-profit company that carries considerable overhead and is dependent on usage fees for revenue. NAV CANADA must be included in the final deal for the air sector while also receiving unambiguous access to existing programs like the Canadian Emergency Wage Subsidy.
5. After 30 years of unfulfilled childcare promises, the Liberals have a few months to deliver
COVID-19 has exposed the overwhelming lack of affordable childcare in Canada. Women have borne the brunt of this burden and have been leaving the labour market in the highest numbers in generations.
The finance minister used strong and supportive language, stating: “Canada will not be truly competitive until all Canadian women have access to the affordable child care we need”. Unfortunately, the financial commitment was small and the hard work and decision making was kicked down the line, much in the same way it has been for the last 30 years.
It would be shameful to make it through this global crisis and not learn from the lessons we’ve been given. Budget 2021 must include concrete commitments for a universal national child care program.