$16B competitiveness plan unveiled
Ottawa’s fall update features response to U.S. tax reforms
OTTAWA The federal Liberals have come up with a $16-billion answer to Canada’s competitiveness concerns.
Ottawa’s long-awaited plan to help Canada compete with the United States for investment dollars is the centrepiece of its latest fall economic statement, which forecasts slightly deeper annual deficits over the coming years.
Finance Minister Bill Morneau had faced pressure from the business community to take the big step of lowering the corporate tax rate across the board as his response to major tax and regulatory reforms in the U.S.
In Wednesday’s economic update, Morneau chose a cheaper approach — but one that will still use billions worth of extra federal fiscal space to offer tax incentives for businesses that invest in Canada.
Speaking with reporters, Morneau said Canada is benefiting from “a very good situation” when it comes to the health of the economy and the labour market. After hearing from companies, however, the government decided to do more to encourage investors to open their wallets north of the border.
“We know that we have to consider investments in the future,” he said Wednesday shortly before tabling the fall update in the House of Commons. “That’s why we listened to and heard the anxieties of the business sector.”
As part of the announcement, a government backgrounder warned the American reforms could significantly erode Canada’s overall businesstax advantage compared to the United States.
By far, the biggest-ticket items among the proposed tax measures are changes that would enable businesses to immediately write off the full cost of some types of machinery and equipment, and allow companies of all sizes and in all sectors to expense a larger share of newly acquired assets.
The new write-offs alone are expected to lower federal revenues by about $14 billion over the next half-decade.
As part of its competitiveness plan, the government also proposed about $1.1 billion over the coming years towards efforts to open new markets for Canadian exporters. The amount includes a re-allocation of close to $800 million in infrastructure funds towards improving transportation capacity — at marine ports, in particular — to boost overseas trade.
Ottawa also plans to add another $800 million over five years to its strategic innovation fund, which supports “innovative” investments in all sectors.
A stronger economy has given the government about $22 billion in extra fiscal room over the coming years, compared to what federal forecasters projected in last February’s budget. But the new initiatives will also contribute to slightly largerthan-expected annual shortfalls, beginning next year.
The government is now projecting deficits of $18.1 billion in 2018-19, $19.6 billion in 2019-20 and $18.1 billion in 2020-21. After 2020-21, the annual shortfalls are expected to shrink each year to $11.4 billion in 2023-24.
The fiscal update contains no timetable to eliminate the Liberals’ deficits. The government has drawn almost daily criticism from the opposition Conservatives and some economists for failing to provide a timeline back to balance, especially with the economy running close to full strength.
Following the 2015 election, the Liberal government abandoned pledges to run annual deficits of no more than $10 billion and to balance the books by 2019. Instead, it has focused on reducing the net debt-to-GDP ratio — also known as the debt burden — each year.
The debt-to-GDP ratio is now projected to gradually fall from 30.9 per cent in 2018-19 to 28.5 per cent in 2023-24.
With an eye on the 2019 election, the Tories’ parliamentary finance critic attacked the Liberals’ economic statement.
“That is effectively the platform that they’re running on today — that there will be deficits forever,” Pierre Poilievre told the House of Commons.
The government plan also proposes $240 million towards sustaining Canada’s wild fish stocks, with a focus on Pacific salmon.
Many industry stakeholders welcomed the government’s business tax changes Wednesday.
Ottawa gives media a $600-million boost
The federal government is stepping in to help the struggling Canadian media industry with new tax credits and incentives valued at nearly $600 million over the next five years.
“To protect the vital role that independent news media play in our democracy and in our communities, we will be introducing measures to help support journalism in Canada,” Morneau said.
The full details of the program won’t be available until the next federal budget, after the government receives advice from an independent panel from the news industry.
The goal is for the program to be funded by the government but have no role for politicians to decide what constitutes a media outlet or who would be eligible. That way, the government hopes to avoid the appearance of conflict between a free press and government influence.
The program will likely cost the federal treasury about $45 million in 2019-20, rising to $165 million in 2023-24.
It’s expected most of the expense will be for a new tax credit for media organizations to support the labour costs of producing original news content, but finance officials said specific amounts won’t be available until eligibility details have been decided.
Another temporary tax credit will be created for subscribers to digital news media sites.
Plus, the government will allow nonprofit media organizations to apply for charitable status, enabling them to seek donations for which they could issue tax receipts. Non-profit media with such status would also be eligible to receive funding from other registered charities. La Presse, Canada’s largest French daily newspaper, moved to become a nonprofit entity earlier this year, severing ties with the Power Corp. conglomerate owned by the Desmarais family.
Alberta disappointed in economic update: Ceci
Alberta’s finance minister says Ottawa’s latest fiscal update shows the federal government doesn’t appreciate how badly the price squeeze on western Canadian crude is hurting the Canadian economy.
“It’s clear the federal government’s not speaking the same economic language of Albertans,” Joe Ceci said Wednesday. “Ottawa is living in a different economic planet.”
Ceci said he was disappointed the fall economic statement included no actions to help Alberta oil producers narrow the price gap between their product and U.S. light crude — around a staggering $45 a barrel recently.
He said Ottawa has not demonstrated a clear understanding of the economic damage caused by the failure to build new pipelines to coastal waters, enabling exports outside the United States.
“We face a critical time for Canada’s energy sector and until our market access issues are addressed, the national economy will continue to forfeit billions to the American economy,” Ceci said.
“This update does not address one of the biggest concerns Albertans have — getting fair value for our non-renewable resources.”
Last month, Alberta Premier Rachel Notley proposed Ottawa invest in moving oil to market on rail cars as a stop-gap measure to relieve some of the landlocked oil glut until new pipelines come into operation.
Ceci said he would have liked to see a mention of crude-by-rail in the economic statement.
But he said there could be more information on that matter as soon as Thursday, when Prime Minister Justin Trudeau is scheduled to visit Calgary.
“We’re busily working to get those numbers together.”
Ceci said he is pleased with measures included in the fiscal update to allow manufacturers to write off certain capital costs immediately. It was something Ceci pitched in a letter to his federal counterpart.