To assist with supply chain relief, $50 million has been allocated to help Canadian ports acquire cargo storage capacity (Getty Images/KittikornNimitpara)
For the first time since the April budget and the close to $30 billion in spending since then, the federal government tabled an economic and fiscal update on December 14.
Since Budget 2021, the government has pledged $71.2 billion for policy actions until 2026-2027, with $28.4 billion dedicated to this fiscal year. With billions committed for Canada’s COVID-19 response plan and economic recovery, the Economic and Fiscal Update 2021 aims to provide Canadians with a transparent look at the country’s finances, while updating citizens on the important goals of combatting the pandemic and supporting people and business. This year’s update pledged more in the fight against the pandemic, while also anticipating a decline in the national deficit.
“By delivering significant fiscal policy support to the economy and avoiding the harmful austerity policies that followed 2008, our investments have supported a rapid and resilient recovery so far,” said Freeland. “In fact, we have recovered 106 per cent of the jobs lost at the peak of the pandemic. But we know there is more to do, and the future remains uncertain. As Omicron has reminded us, COVID-19 threatens us still. As 2021 draws to a close, finishing the fight against COVID-19 remains our most important national project.”
Last year’s economic response plan was created to meet the challenges of the pandemic and the federal government reports exceeding the goal of creating one million jobs faster than anticipated. Of the G7 countries, Canada has one of the fastest job recoveries, second only to France. By the first quarter of 2022, Canada’s real GDP is expected to return to pre-pandemic numbers.
“The government’s projections are prudent, but we need to keep in mind the very high level of uncertainty in predictions over the last two pandemic years,” says David-Alexandre Brassard, chief economist at CPA Canada. “Improvements in federal debt-to-GDP have to be considered alongside inflated GDP numbers due to high inflation. The government is still only aiming at reducing federal debt-to-GDP ratio in the medium-term with no balanced budget in sight.”
STEPS TO BE TAKEN
While CPA Canada recognizes the ongoing need to support those most affected by the pandemic, there must also be a commitment towards longer-term fiscal prioritization and discipline.
To provide accountability, CPA Canada recommends adopting a fiscal anchor framework to help establish stronger confidence among the public, investors and the business community in Canada’s abilities to address debt and deficit—much of which was incurred by responding to the pandemic’s economic fallout.
This year’s update includes a focus on two immediate cost concerns: the Omicron variant and the B.C. floods. Of the $28.4 billion allotted to the 2021-22 fiscal year, $4.5 billion will go to combatting Omicron and $5 billion will go towards B.C. flood recovery plans.
The government continues its stance that a strong public health policy is the best economic policy. The fiscal update discloses federal investments that include ensuring booster shots and pediatric vaccines be made available to all eligible candidates. A proposed $1.7 billion will be allocated to Health Canada and the Public Health Agency of Canada to support rapid testing including expanded school and workplace testing programs, as well as funding to secure rapid test kits for Canadians.
To further ensure economic resilience against pandemic uncertainties, the government will move forward with two proposed measures: the Canada Worker Lockdown Benefit and Local Lockdown Program. These plans will deliver support to local economies and their workers in the face of further restrictions.
One-time payments totalling $742.4 million will be distributed to low-income seniors whose Guaranteed Income Supplement was affected by accepting the Canada Emergency Response Benefit or the Canada Recovery Benefit.
As announced earlier this week, the government is committing $40 billion to address First Nations children affected by the underfunding of child services on reserves. These funds will be put towards compensation and the long-term reform of the child welfare system.
There were not many new changes in the update that will affect taxpayers broadly, beyond the announcement on home office expenses, says FCPA Bruce Ball, vice president of taxation at CPA Canada.
A simplified method for claiming home office expenses will be extended, with the limit increasing to $500 from $400 per tax year. More details are needed to clarify who will qualify for the deduction and how the process for the T2200 (Conditions of employment) form will work.
One change announced is a tax credit for small businesses that make qualifying expenditures to improve air quality. The government also issued drafted legislation for implementing the digital services tax and is inviting input.
“A lack of certainty remains as there was no update on a number of 2021 budget proposals,” says Ball. “For example, immediate expensing of certain costs was proposed for Canadian-controlled private corporations in the 2021 budget, but no details have been provided even though we are months into the qualification period for incurring eligible expenses. We appreciate that some things have been clarified but more is needed to provide taxpayers with certainty.”
DEFICIT AND INFLATION
The 2021-22 deficit is forecasted to be $144.5 billion, down from the $154.7 billion anticipated in the spring budget. This drop can be related to higher federal revenues.
“It is encouraging to see a lower than anticipated deficit resulting from a stronger than expected rebound of income tax revenues and lower spending,” says Brassard. “However, the government has already allocated more than half of the balance improvement toward other initiatives.
Due to global supply chain and pandemic challenges, price pressures are expected to remain. Because of this, the consumer price index is anticipated to increase by 3.3 per cent in 2021 and 3.1 % in 2022.
As such, $50 million has been allotted to supply chain relief to assist Canadian ports with acquiring capacity for cargo storage and other congestion-relief efforts.
ADDITIONAL FISCAL UPDATE HIGHLIGHTS
- $2 billion allotted to lifesaving COVID-19 therapeutics and treatments
- $10 million for First Nations on-reserve schools to improve ventilation and to protect people from outbreaks
- $70 million for ventilation projects in public and community buildings
- $60 million for workers in the live performance industry through a new temporary support, Canada Performing Arts Workers Resilience Fund
- Debt relief to students so they can repay the CERB they were not eligible for, offsetting it with what they should have been eligible for under the Canada Emergency Student Benefit
- Reduce backlog in the immigration system with $85 million to enhance processing of citizenship, reuniting families and welcoming those who can help address labour shortages
The full economic and fiscal update can be found here.
CONTINUING FINANCIAL POSITIONS
See why CPA Canada is recommending a fiscal anchor framework and find additional updates on taxation in relation to this announcement.