Innovation, R&D are key to recovery of our economy

After an eight-month delay, Ontario released its 2020 budget, necessarily focusing on actions and initiatives to deal with the impacts of the pandemic.

With Ontario’s Action Plan now totalling an estimated $45 billion, no one can accuse the government of not being comprehensive in the 260-page budget. However, as it is often said, the devil is in the details.

Underscoring the uncertainty brought on by the pandemic, the budget provides three economic scenarios: planning projection, slower growth scenario and faster growth scenario. Each assumes different rates of economic recovery and, by extension, different revenue forecasts and deficit projections.

The budget, however, only includes one expense scenario, with little consideration given to the impacts the different growth scenarios would have on government spending.

For example, we can assume that in the slower growth scenario COVID-19 cases are consistently high, public health restrictions remain largely in place, and businesses continue to struggle. While the budget contains substantial contingencies to respond to COVID-19 in the next three fiscal years, a key question that remains is whether the existing contingency funds will be sufficient should Ontario experience the slower growth scenario.

We already know that the economic shut-down has resulted in significant business dislocation and job losses, with the service sector and small and medium sized businesses bearing the brunt of the impacts. According to reports, a COVID-19 vaccine is not expected to be widely available until mid-2021 at the earliest. The effectiveness of the various vaccine candidates is still in question, as is how many people will get the vaccine when it is available. These are still open questions. Whatever the answers, the economic dislocation will continue to be felt and requires substantial governmental resources and focus.

Instead, recovery will have to be driven by economic growth, and the subsequent increased revenues growth would bring. The government’s long-term focus should be spurring this growth through supports for innovation and research and development. The government has spoken a lot about the “Ontario Spirit” over the course of the pandemic. They should now create the conditions in which that spirit can drive growth and innovation.

By the same token, when the premier talks about the Ontario Spirit he drives home the importance of purchasing Ontario-made products. While the challenges to our supply chain encountered during the pandemic have highlighted the need to develop and support Ontario-based industry, exports remain an important component of our economy.

One crucial question for the government is how it can juggle the day-to-day COVID-19 issues and develop a longer term, comprehensive economic recovery plan.

One solution is to establish a recovery task force composed of a broad array of experts to develop strategies to spur economic growth and innovation over the next 20 years. Such a group would develop tangible and meaningful recommendations, as the government continues to focus on the pandemic.

Of course, in the short-term, the government focus should be on mitigating the spread and effect of COVID-19 and supporting businesses and individuals. This task force could provide an interim report to the government in time for inclusion in the March 2021 budget, with further reports over the next two years as Ontario’s economy starts to recover from the impact of this pandemic.

That interim report could focus on ways to get capital funding for Canadian startups and early stage-companies, such as the creation of a Sidecar Fund, support both applied research and longer-term innovation plays, and even look at ways to implement opportunity zones to stimulate growth outside of the downtown core.

As the pandemic drags on, there will continue to be pressure to spend more in specific areas that have experienced challenges through COVID-19 — namely long-term care and supports for our seniors. The seniors home renovation tax credit that is proposed will assist with the physical aspects of helping seniors stay in their home, but there will be pressure to match this with increases to home care.

These measures, however, come at a cost. As the government struggles to reign in the largest deficit in Ontario’s history, they must balance these spending needs with an uncertain economy. There will be no easy fix, but a path to budget balance lies within a plan for economic recovery.