Federal budget 2022: Climate change and economic growth in focus

The federal budget was delivered in Ottawa on April 7, 2022 (Getty Images/Danielle Donders)

In response to the impacts of the pandemic, the war in Ukraine, and other economic pressures, including inflation and supply chain disruptions, on April 7, the federal government tabled its first budget since the last federal election.

“With a robust economy and labour market, high oil prices and inflation, the federal government finds itself with significantly improved revenues,” says David-Alexandre Brassard, CPA Canada’s chief economist. The budget delivered a revised deficit projection of $113.8 billion for 2021-22, down from the $154.7 billion estimated in the 2021 Economic and Fiscal Update.

Here are some highlights from the 2022 federal budget:

MAINTAINING FISCAL RESPONSIBILITY

The government’s fiscal anchor remains unchanged in budget 2022, with a focus on building a stronger and more resilient economy which grows faster than federal debt to maintain long-term fiscal sustainability.

Tactics to do so include curbing COVID-19-related deficits and reducing the federal debt-to-GDP ratio over the medium-term, bringing it back to pre-pandemic levels.

Though CPA Canada is encouraged to see lower deficits and a commitment to spending reviews, it believes more accountability is necessary beyond the debt-to-GDP ratio in the form of a fiscal anchor framework, which would provide the targets and mechanisms necessary to better manage government expenditures and the deficit and debt situation.

“Canada has used up a significant amount of its fiscal capacity in addressing the pandemic and supporting Canadians, which has significantly worsened Canada’s budgetary balance and debt level,” says Brassard.

“As we go forward, the government will need to increase accountability towards Canada’s fiscal position and, at the same time, ensure that any new investments do in fact enhance Canada’s productivity, contribute to long-term economic growth and create high quality jobs.”

ACCELERATING ON SUSTAINABILITY

Building upon existing investments to fight climate change and protect our environment —in support of its 2030 Emissions Reduction Plan (ERP)—this year’s budget provides Canadians and Canadian businesses with new incentives to develop, adopt and invest in clean technologies, while making zero-emission vehicles more accessible and affordable.

CPA Canada appreciates these added measures to help reach net-zero targets, while emphasizing the important role sustainable finance plays in its achievement. Actions of individual decision-makers, including businesses, investors and consumers, says Gord Beal, FCPA, CPA Canada’s vice-president, research, guidance and support, must be aligned with Canada’s climate goals.

“The transition to a net-zero emission economy by mid-century is a massive transformation of our society and across the economy,” he says. “This first ERP is an important step in providing broad direction to how individual sectors will need to contribute to Canada’s emissions reduction targets.”

Additionally, the budget pledged $8 million over three years to support the launch of the Montreal centre of the International Sustainability Standards Board (ISSB), which is developing global sustainability disclosure standards.

Pleased with this support, CPA Canada says that while details of mandatory climate-related reporting requirements in Canada are in development, it’s clear that the ISSB standards will set the bar globally. 

“Canadian organizations must be proactive and take action now to develop the systems, processes and controls necessary to compile and report the climate-related and broader sustainability information that investors and other stakeholders are seeking,” says Rosemary McGuire, CPA, director, external reporting and capital markets for CPA Canada.

ACTING ON FINANCIAL CRIMES

Budget 2022 also identifies proposed steps that, if taken, will significantly bolster the government’s Anti-Money Laundering (AML) and Anti-Terrorist Financing efforts.

Those of note include:

• Legislative changes to strengthen the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, the Criminal Code and other financial crime legislation.
• Proposed $89.9 million over five years and $8.8 million ongoing, to support the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).
• Establishing a Canada Financial Crimes Agency, which will become Canada’s lead enforcement agency in this area.
• Accelerate by two years the plan to amend the Canada Business Corporations Act to implement a public and searchable beneficial ownership registry. 

Having called for progressive reforms to Canada’s AML regime, CPA Canada supports these developments, while looking forward to consultations on the intended purpose of a Canada Financial Crimes Agency.

CPA Canada welcomes the federal budget promise of measures to help “maintain the integrity of the financial system, promote fair competition and protect both the finances of Canadians and our national security.”

“Financial crimes, including money laundering, inflict serious costs on Canadians,” says Michele Wood-Tweel, FCPA, vice-president, regulatory affairs for CPA Canada.

MOVING ON TAX

As CPA Canada expected, the budget did not implement any major changes to tax rates generally.

“There were a number of tax measures in the federal budget, with a focus on the environment and housing. A much more gradual phase-out of the small business rate for businesses that have taxable capital over $10 million will benefit medium-sized businesses,” said Bruce Ball, FCPA, vice-president of taxation at CPA Canada.

Here’s a summary of some of the notable changes that will come into effect on varying dates if enacted:

Corporate and business tax proposals

• A refundable investment tax credit, ranging from 37.5 to 60 per cent through 2030, was introduced for eligible carbon capture, utilization and storage expenditures.
• An investment tax credit of up to 30 per cent was proposed, focused on net-zero technologies, battery storage solutions and clean hydrogen.
• The general anti-avoidance rule will be reviewed and its application will be broadened to apply to tax attributes before they are utilized if conditions are met.

Personal tax proposals

• Tax-Free First Home Savings Account allows prospective first-time home buyers to save up to $40,000.
• First-Time Home Buyers’ Tax Credit amount will be increased to $10,000, for a maximum credit of $1,500.
• Home Accessibility Tax Credit amount will be increased to $20,000, providing a maximum tax credit of up to $3,000 for eligible accessibility renovations or alterations.
• Multigenerational Home Renovation Tax Credit will provide up to $7,500 for constructing a secondary unit for a senior or an adult with a disability.

On the international front, as Canada is a member of the Organisation for Economic Co-operation and Development’s (OECD) two-pillar plan for international tax reform, the federal government will begin a consultation on the global minimum tax, with submissions due on July 7, 2022.

For more information on the tax changes included in the budget, see our tax highlights summary.

DEEPER INSIGHTS ON FEDERAL BUDGET 2022

Read CPA Canada’s federal budget analysis and watch the post-budget tax highlights webinar. Plus, learn more about the government’s plan to grow the economy and make life more affordable.