Canada faces several troubling and well-known structural economic problems that are headwinds to improving prosperity and citizen well-being. They include a long stretch of feeble productivity growth, a pattern of weak business investment (including declining levels of capital per worker since 2015), the fourth highest economy-wide debt burden among all advanced economies, and declining global competitiveness. The Business Council didn’t expect the 2023 Budget to address these problems squarely, and after reading the document it’s clear this expectation was met.
But the sprawling Budget did unveil several initiatives with the potential to deliver benefits to British Columbia – and some of our industries and institutions – over the next few years. Four examples are noted below.
An important caveat is that the government’s plan to run endless deficits means that Ottawa will borrow large sums of money to finance some of its proposed initiatives, thus adding to both debt-servicing costs and the debt burden that future generations will have to shoulder.
Betting Big on Clean Tech and Green Energy
On the economic and industrial development side, the main focus of Budget 2023 is supporting the Trudeau government’s climate goals by fostering the growth of Canada’s clean tech sector, helping Canadian industries reduce their carbon footprint by using innovative technologies and production processes, and speeding the development of more electric generation and transmission capacity across the country. The latter is deemed essential to enable a pivot toward low- and no-carbon electricity in place of the fossil fuel energy that now dominates in areas like transportation and the heating of buildings.
In support of the government’s aggressive climate agenda, the Budget unveils a host of tax incentives/subsidies that represent Canada’s response to the blockbuster 2022 U.S. Inflation Reduction Act. The IRA earmarked unprecedented sums to boost the U.S. clean tech industry, accelerate the shift to electric vehicles, and decarbonize the American electricity sector (which remains far more fossil fuel-based than the sector in Canada). The key new Canadian incentives are:
- a Clean Technology Manufacturing Investment Tax Credit;
- a Clean Hydrogen Investment Tax Credit;
- an expansion of the existing Clean Technology investment Tax Credit; and,
- a more generous tax credit for Carbon Capture, Utilization and Storage (CCUS).
The Budget also announced a new refundable Clean Electricity Investment Tax Credit that will be available to Crown-owned provincial utilities such as B.C. Hydro – a positive development for our province.
In total, the “clean energy/clean economy” incentives in Budget 2023 will amount to some $5.6 billion per year by 2026, $21 billion over five years, and as much as $80 billion over ten years. Ottawa is also extending the previously announced preferential corporate income tax rate for clean tech manufacturing.
Against this backdrop, British Columbia businesses and research organizations will receive several hundred million dollars of additional tax incentive-delivered federal government financial support per year going forward. B.C. is well-positioned to gain from Ottawa’s “clean/green” agenda given our sizable clean tech industry, the demand for CCUS in the upstream natural gas and LNG sectors, and the presence of significant numbers of B.C. companies in fields like hydrogen energy, fuel cells, renewable power, smart metering, green building technologies, etc. In addition, some of B.C.’s biggest trade-oriented sectors, including mining, energy, pulp and paper, and metal fabrication, should benefit from increased federal government funding to decarbonize existing industrial activity.
In addition to the above noted incentives, Budget 2023 also signals Ottawa’s intention to take further steps to meet the federal government’s goal of transitioning to a “net-zero” Canadian electricity grid by 2035, and to expand overall electricity generation to support a broader shift away from fossil fuel energy sources. The Canada Infrastructure Bank will henceforth play a more prominent role in “electrifying” the economy by allocating another $20 billion – sourced from existing resources – “to support the building of major clean electricity and clean growth infrastructure projects.” The Budget also earmarks $3 billion over 13 years to advance various smart grid and smart renewables initiatives.
On electricity, Ottawa’s objective appears to be to encourage provincial governments and provincially-regulated electric utilities to increase investments in building out generation/transmission capacity in advance of demand, based on a presumption that the push for decarbonization will eventually lead to much greater consumption of no-/low-carbon electric energy. It remains to be seen how this strategy will play out, particularly since the federal government has limited authority to determine what happens within the provinces’ electricity systems.
Without a sustained expansion of mineral production and processing, the world will fall dramatically short of achieving a low-carbon transition. Mining provides many of the products and technologies required for a greener future. As a major mining jurisdiction, Canada has an economic opportunity and a role to play in increasing the supply of copper, nickel, and other critical minerals along with rare earth elements. In its 2022 Critical Minerals Strategy, the federal government recognized the imperative of better positioning Canada to help meet soaring world-wide demand for minerals and metals. The 2022 federal Budget allocated $3.8 billion to advance Ottawa’s Critical Minerals Strategy. The Investment Tax Credit for Clean Technology Manufacturing, announced in Budget 2023, captures the critical minerals sector by providing a new incentive for investment in critical minerals projects. Several B.C. mining companies should benefit from this new incentive program.
But it takes far too long to bring new mines to fruition in Canada, as recognized in the Budget: “Building Canada’s clean economy will require significant and sustained private sector investment in clean electricity, critical minerals, and other major projects. Ensuring timely completion of these projects is essential – it should not take 12 years to open a…mine.”
To that end, Budget 2023 earmarks $1.3 billion over six years to the Impact Assessment Agency of Canada, the Canada Energy Regulator, and other federal departments and agencies “to continue to improve the efficiency of assessments for major projects.” In addition, Ottawa pledges to produce a “concrete plan to increase the efficiency and timeliness of impact assessment and permitting processes for major projects” by the end of 2023.
The Business Council appreciates the sentiment. There is, to put it mildly, a long way to go. In reality, it has become harder and more expensive for proponents to get mining-related projects approved and permitted when they come into contact with federal jurisdiction. If the political commitment to a Critical Minerals Strategy can be the catalyst for overhauling the federal government’s creaky and cumbersome regulatory regimes, we will be among the first to applaud.
Health Care Transfers
Finally, Budget 2023 confirms the federal government’s previous 2022 commitment to give the provinces an extra $46 billion over ten years for health care, on top of the funding provided through the Canada Health Transfer. For B.C., this will translate into another $400-500 million per year in federal support for health care – not enough to make a material difference, but welcome nonetheless as the provincial government continues to struggle to keep the publicly-funded health care system from crumbling.
At a macro level, Budget 2023 still counts as a disappointment because of the lack of attention given to productivity, spurring overall – as opposed to “green” – business investment, and tackling Canada’s diminished competitiveness globally and in the North American context. We are also troubled by the unsustainable pace of spending growth since 2019 and the absence of a credible plan to return to a balanced fiscal position, despite an overheated Canadian economy.
 Budget 2023, p. 114. TD Economics, “2023 Federal Budget,” March 28, 2023.
 Budget 2023, p. 92.