Freeland offers short-term help

Finance Minister Chrystia Freeland is betting heavily that industrial strategy will save us all.

The federal government’s fall fiscal update avoids forecasting a recession outright, but it does foresee some tough times ahead.

Most likely, Finance officials say, the Canadian economy will eke out the tiniest bit of growth next year. If things go badly, we’ll have a short and shallow contraction over the course of much of 2023.

Either way, it’s a far cry from the robust three per cent growth they thought was in the cards last spring.

“Canada cannot avoid the global slowdown, any more than we could have avoided COVID once it had begun infecting the world, but we will be ready — indeed, we are ready,” Freeland promised Thursday.

So to get us out of this mess, she has some short-term BandAids in store.

There’s some immediate help for low-income workers so they get quicker access to the Canada Workers Benefit. There’s a permanent cancellation of federal interest on student loans and a few measures to ease cost pressure in housing markets.

There’s also a balanced budget in the fiscal forecast for the first time under the Liberals — a signal to financial markets that they can have faith in Canada’s ability to pay the bills, and to the general public that the government has the wherewithal for lots more help if the quasi-recession turns into a full-blown slump.

But the long-term fix that is meant to nurse the Canadian economy back to growth and keep it strong, even in the face of climate change, decarbonization and no end of global adversity, is a strategy that is frequently discussed, heavily funded but never fully defined.

The notion of an industrial strategy has been kicking around for a while in Liberal circles, especially after the pandemic recession prompted deep collaboration between the government and the private sector to change our supply chains and distribution.

It implies that the government will design a coherent set of policies, incentives and subsidies to ignite growth, propel the private sector in key sectors, and completely shift the Canadian economy to a sustainable, greener future.

The concept used to be taboo, thought of as clumsy government getting in the way of efficiency and free markets. But Canada’s competitors have changed that image.

And now, the spectre of our biggest competitor and closest ally — the United States — looms large. Since President Joe Biden pushed through his Inflation Reduction Act, with its billions of dollars in funding for climate, green energy and plain old growth, federal officials in Ottawa and businesses across the country have been working around the clock to figure out the impact.

Freeland’s fiscal update creates two new tax credits for clean energy and clean hydrogen. It also moves forward with the Canada Growth Fund, a $15billion institution to help businesses fund emissions-reducing technology and “unlock private capital.”

At the same time, the fiscal update proposes a two per cent tax on share buybacks.

In the United States, companies have indeed started frontloading their share buybacks to avoid the tax, says Raphael Duguay, assistant professor at the Yale School of Management who has been tracking the Biden impact.

Parliamentarians and government officials will have to hash out all of this over the next year or so, designing measures for long-term recovery even as our competitors rush ahead.

The larger problem, however, is the piecemeal approach to industrial strategy. Of course, voters and businesses have qualms about having government so involved in prodding the private sector this way and that way. But if Ottawa is going to take the plunge, the federal government needs to set out exactly where it sees its powers best placed.

Is it critical minerals and electric vehicles? Is it clean energy? Is it semiconductor supply chains? Is it agri-food? Is it professional services, or financing, or the expertise of our workforce? All of the above?

Canada’s budgeting history is one of half-hearted measures to boost our potential. This economic update is just one part of a series of Freeland’s plans to change this.

Let’s hope the budget maps it out more succinctly.