The 2018 federal budget was one that aimed to grow the economy through strengthening the role of women and promoting science and innovation, with few sweeping changes and a general “steady-as-she-goes” tone. As such, it was also relatively surprise-free, with no current economic crises to address and no impending elections.
However, the GNCC was hoping for a number of other measures which were not seen in this budget. When the economy is growing strongly, and unemployment is low, governments are generally expected to pay down the debt and run a balanced budget, or better yet, a surplus. With this budget, the government is continuing to build up debt and run a deficit during an economic uptick. Canada’s federal public debt is still moderate when compared internationally, however.
The budget also relies on optimistic economic predictions, particularly around unemployment levels remaining at historic lows for an extended period. This leaves the government little room to respond to a potential economic downturn.
The budget also contained a general lack of new supports or incentives for businesses. With the United States embarking on a large-scale reform of regulations and substantial tax cuts, Canada’s position as a competitive business destination is being eroded. On top of that, there is considerable uncertainty over the North American Free Trade Agreement (NAFTA), but this budget does not reflect that uncertainty.
In terms of spending, the government has also focused on innovation and science, with $3.8 billion pledged over the next five years in support. The GNCC recognizes the importance of developing a 21st-century economy for Canada that incorporates science, innovation, and R&D, and we have advocated for more government investment before, particularly in the private sector. We are pleased to see that the government has streamlined and expanded business innovation funding programs, even while reducing their number. The private sector is also deserving of investment, and a science and innovation investment strategy must be broad-based, pursuing not only the trendy software or device industries, but also in helping more “traditional” industries such as agriculture, manufacturing, or retail to innovate and employ R&D to grow the economy. The $700-million Industrial Research Assistance Program is a good step in that direction, but other than this, there is little for businesses that are not in either this or the tech sector (with some exceptions in the cases of female entrepreneurs, as noted below).
A $508-million investment in cybersecurity is also a sound plan. However, while Russian interference in elections may have grabbed headlines, an equally grave cybersecurity danger is that facing businesses and consumers increasingly finding themselves the targets of fraud and identity theft, denial-of-service attacks, ransomware, and more. Last year, the WannaCry attack disabled large parts of the UK’s National Health Service, FedEx, and Deutsche Bahn, among many others; sadly, these cybercrimes are on the rise and Canada must defend itself against them. In addition to protecting departments of the federal government, we would be well-served to extend better protection against hacking, fraud, and cybercrime to the private sector, particularly small businesses without dedicated IT departments.
New announcements also included a “use it or lose it” incentive for fathers or non-birth parents to take parental leave, allowing women to return to work earlier after the arrival of new family members. This is designed to increase female participation in the labour force as well as helping employers with shorter individual parental leaves overall, lessening the impact of leaves on a business without disadvantaging new parents. Funding for women in STEM careers and for women-led innovation also takes aim at the gender gap and should be a boost for many women-led businesses. This policy could be further enhanced with increased funding for childcare, which keeps many more women out of the workforce.
$50-million to support local journalism is welcome. The GNCC understands the role of local journalism not just in supporting businesses, but in supporting democracy through ensuring accountability and informing the electorate. This boost will help local journalists navigate the transformational changes currently underway in their industry.
Of greater interest to the business community, however, are the details of the taxation of passive investment income inside private corporations. Reductions to the small business tax reduction rate render this an effective tax increase even though the passive income ramp itself does not implicitly require it. While angel investors will be unaffected, many Canadian small businesses were using these tax planning strategies, and the government had already backed down from similar proposals made last year. The GNCC prefers fiscal policy that encourages small business growth and that of their investment vehicles, and the attendant growth in the middle class that such encouragement would produce.