The Top Line
The Liberal Government has tabled the Federal Budget for 2016/17. Overall, the Budget delivers on spending priorities that the Liberals had long telegraphed, both through their 2015 Election Platform and other policy statements.
Facilitated by borrowed funds, the Liberal Government will make significant investments in transit, social infrastructure, green technology, financial support for the middle class and families, and transfers to First Nations and programs servicing those communities. Reform of the Employment Insurance system and a recalibration of health transfers to the provinces will also draw on the federal coffers.
As a result of the Government’s planned spending, the fiscal outlook projects deficits until 2020/21, although the Government is committed to lowering the debt-to-GDP ratio over the same five-year period. In the near term, the Government will run near $30 billion deficits over the next two years before dropping to a $14.3 billion deficit in 2020/21.
The Liberals’ fiscal plan is framed by an introductory chapter that builds the case for increased spending by delving into an analysis of slowing international development, shifting global labour productivity, stagnating wages, rising costs for middle class and youth, and economic challenges brought on by rock-bottom natural resource prices and a fluctuating Canadian dollar.
As the first Budget of the Liberal Party’s mandate, this fiscal plan sets the general tenor for the next three years of federal public policy. As Budget 2016/17 announces the Liberals’ plan to repeal the federal balanced-budget legislation, stakeholders should not expect an austere budget for the foreseeable future. From the Liberal Party’s standpoint, the political risk that is often associated with deficits will be worthwhile if they can achieve demonstrable progress on improving national infrastructure and the standard of living for all Canadians, though particularly the middle class and Indigenous Peoples.
Budget Highlights
Fiscal Overview
Budget 2016/17 projects annual deficits of:
- $29.4 billion in 2016/17;
- $29 billion in 2017/18;
- $22.8 billion in 2018/19;
- $17.7 billion in 2019/20; and
- $14.3 billion in 2020/21
Taxation
On December 7, 2015, the Government lowered the tax rate for the middle income bracket ($45,282 – $90,563) to 20.5% and created a rate of 33% for a new top income bracket ($200,000 or more).
With that campaign promise met, the major taxation measure in Budget 2016/17 is the introduction of a new Canada Child Benefit, which will replace income splitting for families with children under the age of 18 as well as the children’s fitness and arts tax credits. The Canada Child Benefit is non-taxable and income-tested.
On the corporate tax rate front, Budget 2016/17 announces a plan to defer any further reductions in the small business tax rate.
Big-Ticket Spending Initiatives
Aside from the overhaul of the child benefit system, most of the spending in Budget 2016/17 is allocated in two broad areas: Infrastructure and First Nations programs.
Infrastructure
The Budget suggests that improvements to infrastructure will facilitate trade, ease urban congestion, improve quality of life, help Canada transition to a low-carbon world, and ultimately grow the economy. To that end, the Government’s Infrastructure Plan will be implemented in two phases.
Phase 1 (primarily over the next two years)
In addition to funding flowing through the existing programs that support infrastructure, the Government plans to immediately invest in modernizing and rehabilitating public transit, water and wastewater systems, affordable housing, and protecting existing infrastructure from the effects of climate change. Planned investments include:
- $3.4 billion over three years to upgrade and improve public transit systems across Canada, via a new Public Transit Infrastructure Fund;
- $5.0 billion over five years for investments in water, wastewater, and green infrastructure projects across Canada, including $2.0 billion over four years for a new Clean Water and Wastewater Fund, as well as $125 million over two years to the Federation of Canadian Municipalities for their Green Municipal Fund; and
- $3.4 billion over five years for social infrastructure, including: affordable housing, early learning and child care, cultural and recreational infrastructure, and community health care facilities on reserves.
In addition to the new funding announced in Budget 2016, the Government will:
- Continue to allocate approximately $3 billion each year in dedicated funding for municipal infrastructure projects through the Gas Tax Fund and the incremental GST Rebate for municipalities;
- Work with provincial, territorial and municipal partners to accelerate spending from the $9 billion available under the New Building Canada Fund’s Provincial-Territorial Infrastructure Component and other existing infrastructure programs;
- Transfer remaining uncommitted funds from older federal infrastructure programs to municipalities through the Gas Tax Fund in 2016/17;
- Ensure that Government institutions are aligned to best support infrastructure innovation, including by transferring responsibility for PPP Canada Inc. to the Minister of Infrastructure and Communities.
Phase 2 (primarily over the subsequent eight years)
By that point, funding will be targeted at projects that in some manner contribute to creating a more modern and cleaner economy, a more inclusive society, and an economy better positioned to capitalize on the potential of global trade.
Indigenous Peoples
Prime Minister Trudeau has repeatedly stated his desire to make marked improvements to the standard of living of Indigenous Peoples across Canada. To that end, Budget 2016/17 commits to eliminating the 2% cap on funding First Nations’ programs – resulting in $3.1 billion in new spending on First Nations’ issues over the next two fiscal years. Investments will be targeted at education, child services, on-reserve infrastructure, and the National Inquiry into Missing and Murdered Aboriginal Women and Girls. Including existing funds, $8.4 billion will be allocated over four years to improve quality of life for First Nations.
Measures Affecting the Business Sector
Financial Sector
Budget 2016/17 dedicates the Government to improving consumer protection. Major undertakings to that end will be the addition of a new chapter on consumer protection in the Bank Act and a review of federal financial sector legislation by the Department of Finance.
Innovation
Budget 2016/17 seeks to spur industrial development through the allocation of $800 million over four years to innovation networks and clusters.
Employment
The Liberals will also undertake to make the Employment Insurance system more efficient and generous. In that policy area, expanded eligibility for EI and extended benefits in regions that are suffering from economic shock are the highlights.
The Government will also aim to alleviate unemployment and provide businesses with workers by funneling additional funding into the Labour Market Development Agreements and the Canada Job Fund Agreements, which help provinces train unemployed people for various trades.
For those exiting the work force, Budget 2016/17 returns the eligibility age for Old Age Security and the Guaranteed Income Supplement to 65 from 67, with an associated top-up of the Income Supplement targeted at low-income seniors.
Environment and Resource Development
The Liberal Party continues to demonstrate its belief that reducing greenhouse gas emissions and boosting innovation and the economy are not competing priorities. In that light, Budget 2016/17 includes a $2.9 billion trust to fund projects that eradicate carbon, reduce air pollution, and help Canada reach its pledge to reduce its GHG emissions in an effort to keep global warming within 2 degrees Celsius.
The Government will also invest directly in green alternatives, with major investments in stimulating the development of renewable technology and scientific research generally, through:
- $1 billion over four years to fund clean technology in the forestry, fisheries, mining, energy, and agriculture sectors; and
- $130 million over five years to support clean technology R&D and commercialization generally.
Other Key Initiatives
Health
Budget 2016/17 reaffirms the Government’s plans to negotiate a new, multi-year Health Accord. In that light, it is projected that health transfers to the provinces will increase annually over the coming five years. Federal-led spending initiatives in the health field will include programs aimed at increasing immunization, researching cures for cancer, and improving the heart health of Canadians.
Education
Beginning in time for the 2016/17 school year, Canada Student Grants will be augmented by 50% for low-income, middle-income, and part-time students. Subsequently, beginning in 2017/18, the existing low and middle-income thresholds will be replaced with a single progressive threshold, under which grant amounts will gradually decline based on income and family size.
As of 2016/17, the Government will require students to repay their federal loans only when they are making an income of at least $25,000/year. Students will also benefit from a flat-rate contribution to their tuition in order to qualify for federal loans, allowing more students to work during their schooling without jeopardizing their access to federal assistance.
Post-secondary research is also on the Government’s radar, with Budget 2016/17 allocating an additional $95 million/year, on an ongoing basis, to the national research granting councils. On top of that, the Liberals have earmarked $2 billion over three years for a new Post-Secondary Institutions Strategic Investment Fund, with the goal of modernizing campus research and commercialization facilities.
National Defence and Public Safety
Budget 2016/17 takes a holistic approach to public safety, announcing a raft of new programs that the Government hopes will contribute to national security, including:
- $15.5 million over five years to restore search and rescue capacity in dense urban settings;
- $77.4 million over five years to secure Government networks and information technology systems; and
- $143 million over three years to maintain and expand railway safety measures.
The Budget document also briefly touches (with few details) on the Government’s plan to renew the Armed Forces major equipment and pledges $379 million over eight years for the Canadian Space Agency to continue its participation in the International Space Station.
Electoral Reform
The Government remains committed to enacting some kind of electoral reform, after consultations on the topic. Prior to that, a program of public outreach on the topic will be funded by an allocation of $10.7 million from this year’s budget.
Arts and Culture
With Canada’s 150th Anniversary celebrations on the horizon in 2017, the arts and culture sector will receive a boost in funding to support projects that highlight Canada’s cultural industries and museums. In addition, there is $675 million in funding for the CBC, $550 million for the Council for the Arts, and a combined $35.5 million for Telefilm Canada and the National Film Board.
Opposition and Media Reaction
As expected, the Conservative Party and the NDP criticized the Budget. The Official Opposition Conservative Party’s criticism focussed on the higher-than-projected deficit figures, labelling the Budget as a plan to borrow with no plan to create jobs. The NDP believes that the Budget does not make sufficient investments to reduce inequality and meet the Liberal Party’s pledges on Indigenous Peoples’ policy, while the NDP also criticizes the decision not to reduce the small business tax rate.
What Comes Next
The Liberals hold a majority in the House, and thus have the ability to pass all budget-related items into law quickly. Both Opposition Parties will be extremely vocal against measures included in the Budget, and they may also choose to exercise certain legislative tools to delay and stall the Budget Bill. Stakeholders can expect the Budget to pass through the legislative process quickly.
With the Budget tabled, the Government must now turn its attention to the decision on whether or not to extend a federal grant or loan to Bombardier. Successive Governments of all political stripes have viewed the aerospace giant as ‘too big to fail’, and the new Liberal regime has been asked to inject a significant amount of federal cash into the company’s C-Series jet program. Doing so could have knock-on effects for the spending commitments made in this year’s Budget.
TSA looks forward to assisting its clients navigate the Budget and the current federal political environment. Possessing a strong network across Party lines, TSA is your ideal government relations partner. Please contact us if you have any questions.
