Budget 2022: $452B plan focused on affordability, innovation as uncertainty looms

OTTAWA — Finance Minister Chrystia Freeland’s second pandemic budget turns Canada’s fiscal focus to making life more affordable and giving a long-needed boost to Canadian productivity.

She nonetheless wrapped the budget in copious amounts of yellow caution tape, warning of the economic uncertainty posed by Russia’s invasion of Ukraine and inflation rates at three-decade highs.

But with investments in NDP priorities — housing, dental care and a tax on excess bank profits all making the cut — the budget will pass the first test of the NDP-Liberal confidence and supply deal reached last month.

“It’s honoured the agreement,” said NDP Leader Jagmeet Singh, shortly after Freeland finished delivering her budget speech in the House of Commons Thursday.

He said the NDP caucus will vote for the budget, which means the Liberal minority government will survive the confidence vote.

Federal program spending falls to $425.4 billion in the new fiscal year with a deficit of $52.8 billion, which are the lowest since before the pandemic but still significantly above pre-pandemic levels. Total spending in this budget, including debt servicing, is $452.3 billion.

Freeland projects revenues will grow to close to half a trillion dollars in five years, and the deficit will fall each year until it hits $8.4 billion in 2026-27.

This budget began its life with a growth agenda, Freeland said in her speech to the House of Commons Thursday, and that remains its focus.

And while she insists the “convoys of Russian tanks rolling across Ukraine” did not push the Liberal government off that goal, the war still made itself known in the pages of the budget.

Among $56 billion in new budget measures included, $8 billion is designated for defence. It’s one of the single biggest line items and was not in the cards before the Feb. 24 invasion shattered complacency about the military and Canada’s role in NATO.

“We know that freedom does not come for free, and that peace is guaranteed only by our readiness to fight for it,” Freeland said in her speech.

She was clear the budget is winding down pandemic-related spending that headlined the last two years and led to unprecedented deficits.

She defended the aid programs that helped families and businesses stay afloat during lockdowns as the reason Canada’s economy has recovered, but she said that kind of spending cannot go on forever.

“The time for extraordinary COVID support is over,” she said.

The government is now shifting its attention to social economic drivers like housing, immigration and child care. Echoing U.S. Treasury Secretary Janet Yellen’s talk of “modern supply-side economics,” Freeland spoke of how those social drivers can help tackle inflation and increase affordability.

The Liberals were heavily criticized last December for failing to do enough in the fall economic and fiscal update to acknowledge and address rising inflation.

The problem has become much worse in the months since.

Inflation, higher oil prices and better economic growth than expected left the Liberals with more revenue than previously anticipated, but Randall Bartlett, senior director of Canadian economics at Desjardins, said the Liberals didn’t immediately spend all of it.

“They’ve kept a lot of spending on new measures back in as a result of the uncertainty now,” he said. 

“Ultimately, some of these measures could be back on the table again, but … they’ve just decided to exercise caution right now and wait to see how these current global and geopolitical dynamics play out.”

There is $14 billion in new spending to try and address the shortage of housing that has driven prices up drastically, and $20 billion for health care, more than half of it in higher transfers to the provinces because that formula is based on GDP growth.

They are also delivering on the promised tax credit for carbon capture utilization and storage systems, which was welcomed cautiously by the oil and gas industry.

Interim Conservative leader Candice Bergen said the Liberals did nothing to make life easier for Canadians. Instead she said they are using billions in extra revenue to secure the votes of the NDP.

“I’m very concerned that with their increased spending everything will continue to go up,” she said. “It’s not a good budget. It’s an irresponsible budget. Conservatives will not be supporting it.”

There is a heavy emphasis on transitioning to the green economy, with new investments in critical minerals and metals, expanding the availability of zero-emission vehicles and charging stations.

There is also a new arm’s-length public investment fund to encourage private sector investment in clean technology.

Freeland said the budget is an attempt to power-up Canada’s productivity and innovation, which she calls “the Achilles heel of the Canadian economy.”

Canadians are highly educated and full of good ideas but turning that into tangible products and services has been a longtime problem in this country, she said.

The budget is promising to create an innovation and investment agency with an initial $1 billion investment to help Canadian companies access capital needed to grow and get products onto the market.

This report by The Canadian Press was first published April 7, 2022.

Mia Rabson, The Canadian Press