For two years, Canada’s fiscal planners were in crisis management mode to address the economic impacts of the COVID-19 pandemic and lockdown. Budget 2022 provided the first sense of a blueprint for a post-pandemic economy. Canadian Chamber of Commerce President and CEO Perrin Beatty and Senior Vice President Mark Agnew offer a budget response from the business perspective.

Perrin Beatty and Mark Agnew

Although Budget 2022 clocked in a few hundred pages smaller than last year’s edition, the stakes for the government and for the country were higher this year. Not only has Canada faced the Omicron wave and now a BA.2 variant, but there has been the added crush of inflation to a degree not seen in a generation, and a war in Eastern Europe. As if that were not enough, businesses continue to face long-term structural challenges, including our aging workforce, the transition to net zero, and lagging productivity. 

With those factors in mind, we need much higher economic growth to generate the economic activity that will both improve our quality of life and pay for social programs, and to ensure the next generation is positioned for success. 

Businesses welcomed seeing Deputy Prime Minister and Minister of Finance Chrystia Freeland recognize the importance of economic growth both in the title of this year’s budget and in her comment that “this growth agenda was always going to be [the government’s] focus.” However, the job is far from done.

This year’s federal budget is a down payment on the work yet to come. The scale of the task ahead is particularly evident on net zero, tax policy, defence spending, and non-fiscal policy tools. 

Canada’s path to net zero must preserve our competitiveness, enhance investment, create jobs for Canadians and promote innovation — no small challenge. Budget 2022 took crucial steps to get us there. One of those vital measures is the development of an investment tax credit for carbon capture, storage, and utilization (CCUS). CCUS is a technology with applications that extend beyond the oil and gas sector, but its deployment is essential for Canada to reach its 2030 targets and eventually net-zero 2050. We also saw substantial commitments that will unlock the upstream potential of Canada’s natural resources in critical minerals, and complement recent announcements of downstream manufacturing in the electric vehicles space. 

As welcome as these early steps are, they are not the end of the journey. The government now needs to ensure these programs are successfully stood up and delivering value for money. It must also provide full support for a range of other energy technologies like small modular reactors and hydrogen. And the government also needs to ensure that the new Canada Growth Fund, the expanded mandate of the Canada Infrastructure Bank, and the existing Net Zero Accelerator Initiative work together in a way that supports the varied decarbonization strategies that will be needed for different regions of a country our size. Clearly defined mandates will instill investor confidence that we have a plan that can work. 

As with all budgets, this year’s was heavy on a range of tax tools. From the business community perspective, they include unwelcome measures such as the continued targeting of additional tax measures on certain key sectors. But the budget also contained welcome announcements, including the reduction of taxes on many small businesses and a review of whether the tax system is providing adequate support for investments to grow businesses. 

There is still a heavy lift ahead to get our tax system to where it needs to be. We are still without a much-needed independent review of the Canadian tax system. We need to rethink not only the balance in terms of corporate, personal, excise and consumption taxes, but also the administrative burden. As noted in our pre-budget article for Policy Magazine, Canada ranked 19th for ease of paying taxes in the 2020 World Bank Doing Business index. That’s certainly not the best way to persuade investors to put their money here.

This year’s budget also included a dedicated section on Canada’s Leadership in the World. It’s rare for a Canadian budget to have such a headline theme. However, current geopolitical events make the link between national security and economic security starkly clear. The budget committed to both a defence policy review only five years after Strong, Secure, Engaged, and to increased defence spending of $8 billion over the next five years. While we will still be well below the NATO 2 percent of GDP target, this is at least a first step towards replacing defence systems faster than they are rusting out. 

We still have a long way to go before we can convince our allies — and, even more importantly, our opponents — that we take defence issues seriously. Recent experiences with the fraught processes to buy large platforms such as frigates and fighter jets underscore the need for us to up our game on defence procurement. 

The next major test will be NORAD modernization. The government must first identify the defence capabilities our country needs, and then determine what must be done to meet those threats and how it will pay for what may be a very long list. The dialogue with industry needs to start early. Given that military innovations often have important civilian applications, we should integrate defence into the existing suite of innovation programs instead of placing it in a different silo. There may be a sign that the government understands this linkage. It was gratifying to see the budget acknowledge the Canadian Innovation and Investment Agency as a tool to support innovation in the defence sector. 

After every budget, commentators line up to assess it based on how much money is given to various interest groups. This type of analysis is much easier than trying to measure how it will affect our competitiveness or whether it will help the next generation be more successful than this one. And measures whose benefits will be felt only several elections from now are much less attractive to politicians than satisfying the demands of organized groups today. However, promoting economic growth isn’t as easy as simply writing cheques on a bank account that’s already overdrawn.

The government has a range of tools that would not require new program spending or foregone revenue in the form of tax cuts. Take the example of regulatory reform. Companies across many sectors face a constant tussle with federal government regulators who don’t consider the economic competitiveness impacts of their decisions. Forcing regulatory agencies to consider how their actions affect our ability to compete would benefit both businesses and consumers but not cost the government a nickel. There are other policy areas, such as dismantling internal trade barriers, modernizing our digital economy policies, and focusing on how our trade policy can help businesses gain market share. Unfortunately, this year’s budget contained little to drive forward the use of non-fiscal policy tools, beyond a brief mention of internal trade.

No-one should need to be convinced in 2022 that Canada faces both acute issues and long-term economic challenges. We don’t have the luxury of deferring action on them until some indeterminate date in the future. Our competitors aren’t waiting. Budget 2022 took some first steps towards dealing with these issues, but a long road still lies ahead.    

Perrin Beatty, President and CEO of the Canadian Chamber of Commerce, is a former cabinet minister in the Clark, Mulroney and Campbell governments. 

Mark Agnew is the Senior Vice President, Policy and Government Relations, of the Canadian Chamber of Commerce.