January 30, 2023
The Top Line
Parliament resumes sitting this week. The House of Commons reconvenes today, while the Senate will do so tomorrow. It promises to be a busy period of federal policymaking. Expect this session of Parliament to be dominated by healthcare and the economy – two policy and political areas in which the Trudeau government is navigating much more uncertain and challenging circumstances compared to its prior years in power.
The COVID-19 pandemic placed extraordinary strains on Canada’s health system, which seem to have resulted in falling service standards. The traditional blame game, in which the federal government frames the issue as a provincial matter and the provincial governments cry poor, wore thin with the public in 2022. In recent weeks, the Prime Minister and many Premiers seemed to have adopted a preference for finding a new funding deal over playing that blame game. A First Ministers’ meeting to announce at least the framework of a new ‘Health Care Accord’ – likely built around significant new and continued Federal funding transfers to the provinces and provincial agreements to report on spending areas and outcomes – should be expected soon.
On the economy, the federal government is facing potential challenges not seen in a generation. Key questions for determining the federal fiscal approach in 2023 are:
- Will the high inflation rate seen in 2022 start to recede in 2023, or will it remain stubbornly high?
- Will growth remain strong enough to avoid a first recession since the 2007-09 financial crisis and its aftermath?
- Will a potential recession be accompanied by a significant increase of the unemployment rate?
- Can the federal government spend in its priority policy areas – such as healthcare and business supports to respond to the U.S. Inflation Reduction Act – without accelerating inflation in Canada?
Some forecasters believe Canada is already experiencing negative economic growth. Figuring out which potential problems to address, inflationary pressures, a recession, or both, will be the main challenge that Deputy Prime Minister and Finance Minister Chrystia Freeland faces as she prepares the 2023 federal budget. Based on its track record and recent policy commitments, it will be difficult for the Liberal government to avoid significant new expenditures on priority policy areas such as the environment, healthcare, and industrial policy. However, stakeholders should expect many such expenditures to be booked for fiscal year 2024/25 and beyond, in an effort by the Liberals to appear responsive to current economic circumstances.
While healthcare and the economy, along with the visit of U.S. President Joe Biden to Ottawa, will dominate the headlines for the next few months, the Liberal-NDP Confidence and Supply Agreement will provide the stability necessary to make 2023 a busy legislative and policymaking year in general. On the legislative side, key Bills for the Winter/Spring 2023 session include Bills C-21 on firearms control, C-5 (An Act to Amend the Environmental Protection Act), C-27 (the Digital Charter Implementation Act), C-11 (the Online Streaming Act), C-18 (the Online News Act), and C-35 (Canada Early Learning and Child Care Act). Additionally, watch for major pieces of legislation to be introduced this Session regarding the Government’s long-promised online harms initiative, the Government’s “just transition” commitments (even as the words just transition are increasingly eliminated from the Government’s vocabulary in favour of the term “sustainable jobs”), and, of course, the first Budget Implementation Act to implement elements of Budget 2023.
Finally, we can expect constant election speculation during 2023 – as is the norm during minority governments. But, barring a significant uptick in support for either the Liberal Party or the NDP, 2023 is an unlikely year for an election. Expect the Liberals and NDP to focus on the above-outlined policy and legislative pieces, and, crucially, to position themselves to take credit for successes in those areas ahead of an election further into the future.
A Closer Look at Key Issues
Health Care
Securing a new deal with the provinces on health care funding is paramount for the Government. Expect to see a significant amount of new money offered to the provinces. Offering that funding is not a deal-breaker for the federal government – the true negotiations are over what strings come attached to the funding. The public’s understanding of Canada’s health care system was drastically altered by the COVID-19 pandemic, and throwing new money at the problem(s) will not be sufficient to convince the public that the system is being repaired.
Meanwhile, the ongoing implementation and expansion of the Canada Dental Benefit will be a policy priority for the Liberals and the NDP – as will the ongoing political fight for who gets credit for the initiative. Whether the NDP can turn the implementation of the Canada Dental Benefit into success at the ballot box during the next election will be a significant determinant of whether Jagmeet Singh’s decision to prop up the Liberal minority Government was a political success or not. Finally, recent statements from Mr. Singh that he expects legislation on pharmacare in 2023 as a condition of continuing the Confidence and Supply Agreement squarely brings that issue, which had been largely forgotten for the past 18 months, to the forefront of the Federal policy agenda for 2023.
With all that in mind, expect healthcare to be a dominant political theme through to the next election cycle. How the Liberal government handles this file in 2023 will be a major factor in the next election.
The Budget
Between 2015 and 2020, Justin Trudeau and the Liberal government had the good fortune to govern during an economic cycle of stable growth, low inflation, and low unemployment. That all changed in March 2020, as economic concerns have been a dominant issue since the beginning of the COVID-19 pandemic. But the economic picture facing the Government in 2023 is its biggest macroeconomic challenge yet. The federal government is facing the dual threat of tackling the highest inflation rate in decades and preparing for a potential recession – two challenges that traditionally call for drastically different spending and budgeting responses from governments. How the Government chooses to address those dual threats, and which one takes precedence, is the key question for Budget 2023. Expect the Government to deliver a late March or April Budget in an effort to get a clearer read on economic circumstances before committing to a particular course of action. No government wants to face an electorate during difficult economic times, and for that reason it’s absolutely imperative to the Liberals that the economy be back on the upswing before the public next heads to the polls. So, economic uncertainty is a big reason for the low likelihood of an election in 2023.
Confidence and Supply Agreement
The Liberal – NDP Confidence and Supply Agreement is the key to a functioning Parliament this Winter and Spring. The benefits of the agreement for the Liberal Party have been significant and immediate. In some respects, the agreement has allowed the Liberals to govern almost as a de facto majority. For the most part, House of Commons committees are functioning, legislation is progressing relatively quickly, and Ministers and senior political staff have been able to focus on government priorities as opposed to day-to-day politicking. For the NDP, the benefits of the agreement are less clear at this time. The centrepiece of the agreement for the NDP – the Canada Dental Benefit – is up and running, but it appears the Liberals have been somewhat successful in taking credit for it. Ultimately, in the next election, it will not be enough for the NDP to claim that the Confidence and Supply Agreement allowed a number of initiatives, such as the dental benefit and affordable housing to progress. Instead, they must convince the electorate that a strong NDP contingent in Parliament is required for continued federal action on such issues.
President Biden Visit
The visit of U.S. President Joe Biden to Canada is a notable addition to an already full political calendar in the next 8-12 weeks. Substantively, the Biden visit (as well as Budget 2023 closely thereafter) should be a platform for insights into how the Liberal government plans to collaborate on and respond to Biden’s Inflation Reduction Act (IRA) and the challenges and opportunities it presents for the Canadian economy. The IRA contains a number of incentives to promote investment in key sectors of the U.S. economy and the growing green tech industry, and the Canadian government is under pressure to respond with its own industrial strategy. We can also expect Canadian defence spending, which is lagging other NATO nations, to come under scrutiny during President Biden’s visit. Politically, the President’s visit will be an opportunity for the Trudeau government to remind Canadians of the stark choices likely to face voters in the United States in the next election. The Liberals know that Canadians are – by and large – nervous about the rise in support for populist Republicans such as Donald Trump and Ron DeSantis. As such, they will try to use the Biden visit to draw parallels for Canadians between Pierre Poilievre and some of the Republican opponents of President Biden.
Environmental Issues
The Government made significant strides on its ambitious environmental agenda in 2022, notably including the passage of the Clean Fuel Regulations – which were years in the making – and regulations to support a federal plastics management framework. But there are still many policies on the Liberals’ to-do list. The “just transition / sustainable jobs” legislation and a cap on oil and gas sector emissions are the two most high-profile of those policies. Both initiatives are facing significant headwinds in 2023. Firstly, the upcoming Alberta Election is perhaps the single biggest challenge to navigate in the first half of 2023. Premier Danielle Smith is eager to make Justin Trudeau and the federal government a main election issue in the province. The possibility of having a Premier in Alberta that is less diametrically opposed to the federal government on a range of issues is enticing to the Liberals, and may cause them to make the political calculation to stay quiet and/or slow down on both the sustainable jobs and oil and gas emissions files. The second challenge facing the Government’s environmental agenda is the potential for a recession. If Canadians are feeling less secure about their economic prospects, and particularly their employment prospects, the Government might feel forced to scale back its environmental agenda. In essence, the question here is does James Carville’s famous 1992 maxim “it’s the economy stupid” still hold true 31 years later or has “the economy and the environment go hand in hand” taken precedence?
What This Means
The federal political and policy agenda promises to be crowded and productive in the next six months. An expected First Ministers’ meeting, a visit from President Joe Biden, and a budget in the face of strong inflationary pressures top the agenda. Beneath those headlines, things are just as crowded, with an ambitious legislative agenda on tap. Like the recent Fall session of Parliament, stakeholders seeking to make progress on key policy and legislative items have ample opportunity to do so, given the Confidence and Supply Agreement.
