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Deputy Prime Minister and Finance Minister Chrystia Freeland responds to questions from the opposition after delivering the federal budget in the House of Commons, on April 7, in Ottawa.Adrian Wyld/The Canadian Press

Rarely, if ever, had a finance minister faced as much public criticism from Canadian business leaders for lacking direction as Chrystia Freeland did in the run-up to Thursday’s federal budget.

She had been accused of spending too much, stoking inflation, and not worrying enough about the country’s economic competitiveness. They warned that Ottawa’s failure to address Canada’s abysmal long-term growth prospects, compared to other developed countries, was setting the country up for a painful reckoning and leaving us woefully unprepared to tackle future crises.

The criticism, it turns out, did not fall entirely on deaf ears. Ms. Freeland’s second budget amounts to an exercise in self-restraint for a Liberal government typically bent on finding any excuse to spend more. There are still some questionable new expenditures, including those aimed at “helping” first-time home buyers. But, overall, this is a wait-and-see budget.

The war in Ukraine has sent commodity prices surging amid an already inflationary international environment. Global supply chains are choking and international trade is contracting. Rising prices are forcing central banks to raise interest rates faster than they would like to. Even the most resilient economies may not be able to withstand the fallout from these forces.

In the short term, inflation has been Ottawa’s friend, leading to a revenue windfall from the GST and corporate taxes, which increased by 35 per cent in the 2021-22 fiscal year, boosting overall revenues by $24-billion compared to the level projected in Ms. Freeland’s fall economic update. Last year’s deficit is now projected to come in at $113.8-billion, or 4.6 per cent of gross domestic product, instead of the $144.5-billion, or 5.8 per cent projected in the fall update.

This year’s deficit, at $52.8-billion, or 2 per cent of GDP, is forecast to be only modestly lower than the $58.4-billion projected in the fall update. But coming off a federal election in which the Liberals promised billions in new spending, before concluding a supply and confidence deal with the New Democrats, one might have expected Ottawa to go even deeper into the red.

“The money that rescued Canadians and the Canadian economy [during the pandemic] … has depleted our treasury,” the Finance Minister said in a forward note to the budget. “We will review and reduce government spending because that is the responsible thing to do.”

Still, the federal debt will clock in at $1.21-trillion this year, or 45.1 per cent of GDP. That is below the 48 per cent projected in the fall update – thanks mainly to inflation-driven growth in nominal GDP – but nevertheless a more than $500-billion increase from the $721-billion the debt stood at before the COVID-19 pandemic. The budget shows the debt ratio declining to 41.5 per cent by 2026-27, though no one should bet their bitcoin on Ottawa hitting that target.

A protracted conflict in Ukraine or even faster-than-anticipated interest rate increases could tip the global economy into a recession. And this budget leaves out hefty big-ticket items that the Liberals have already promised, including pharmacare (to the NDP) and billions of dollars in new defence spending (to Canada’s NATO partners).

As for another major gripe levelled at Ms. Freeland by business leaders – that Ottawa has no strategy for boosting Canada’s long-term growth potential – the budget is a disappointment. The proposed $15-billion Canada Growth Fund risks following the Canada Infrastructure Bank into irrelevance. Ottawa is devoting $1-billion over five years to a new Canadian Innovation and Investment Agency, modelled on Israel’s Innovation Authority and Finland’s TEKES. The budget says the new agency will be “operationally independent” from the government, but the details remain vague.

Ottawa is promising another review of the Scientific Research and Experimental Development program, which has failed to move the needle on Canada’s lamentable level of business R&D. The latter stands at 0.8 per cent of GDP, compared to 2.3 per cent in the United States. But lofty statements of intention are not a strategy for fixing the problem.

The budget allocates $3.8-billion over eight years to a Critical Minerals Strategy aimed at spurring investment in the mining and processing of metals and minerals used in electric-vehicle batteries. A refundable tax credit for carbon capture, utilization and storage (CCUS) projects – a major oil-and-gas industry ask – is slated to cost $2.6-billion over five years and about $1.5-billion annually after that. Neither measure is likely big enough to be a game-changer.

Amid the war in Ukraine, Ms. Freeland’s budget amounts to a missed opportunity to position Canada as the world’s most responsible provider of the natural resources the planet needs now, and those that it will increasingly need in the future, to transition to a low-carbon economy. The Liberals are still constrained by their unwillingness to embrace Canada’s strengths. And that only makes the country weaker.

Federal budget 2022: What it means for you

Personal finance columnist Rob Carrick highlights how the budget seeks to counter inflation, what it offers for dental care and how a new tax-free savings account aims to give first-time homebuyers a boost.

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