March 28, 2023 (Vancouver, B.C.) - The twenty-word title for Budget 2023 provides readers with some insight into what is contained in the document -- 388 pages consisting mostly of announcements, reannouncements, and micro-measure reporting. Apart from several measures to bolster clean tech and clean energy development, there is nothing that will arrest the decline in Canadian per capita economic growth, fix our poor productivity growth record, or help attract capital investment generally.
The slowdown in global and domestic economic growth will weigh on government revenues, but growth in government spending in Budget 2023 continues unfettered. For fiscal 2022-23 (ending March 31, 2023), the Federal government now expects a deficit of $43 billion, $6.4 billion more than projected in the Fall Economic Statement, due mostly to new spending. In the upcoming fiscal year, the deficit will hover near $40 billion, equal to 1.4% of the GDP. In contrast to last year’s budget, which showed some glimmers of fiscal responsibility by positing a return to surplus at the end of the fiscal planning horizon, Budget 2023 plans for an endless stream of red ink through to at least 2027-28.
We see little justification for adding fiscal stimulus of 1.4% of GDP when the economy and labour market are overheated and global central banks are hiking interest rates to tame runaway inflation. With an economy operating beyond full employment, the government should be pulling in the same direction as the Bank of Canada by running surpluses or balanced budgets.
While Budget 2023 is marketed as one for the never-defined “middle class,” most of the new spending and tax incentives are narrowly targeted. There is no broad tax relief for households, nor for businesses. Instead, narrowly defined tax breaks and subsidies are directed towards clean technology and clean energy. Understandably, the government has felt it necessary to respond in some way to the U.S. Inflation Reduction Act, which features up to U.S.$400 billion of funding to accelerate the growth of the clean economy and support the low carbon transition. But Canada faces competitive challenges that extend well beyond the clean energy/clean tech sector, which according to Statistics Canada represents only about 3% of the country’s almost $3 trillion economy. For the other 97% of the economy, Budget 2023 offers little or nothing.
Overall, the revenue-raising measures in the Budget were modest. But the government did move to offset higher spending partly with a few tax hikes, targeting high income Canadians and the dividend treatment of financial corporations. On past form, these will yield less revenue than Finance Canada is projecting, while adding more complexity to an already almost incomprehensible tax system.
With population growth running at 2.7% per year, and considering the GDP growth forecasts in the Budget, we estimate that real per capita GDP will fall in every year of the forecast horizon.
“We are concerned about Canada’s weak growth profile and the fact that this Budget does little to support business investment, address Canada’s productivity malaise or boost potential per capita economic growth. With per capita GDP having already fallen over 2020-2022, the new Budget’s forecasts imply further falls in real per capita incomes lie ahead for another five years,” noted Ken Peacock, the Business Council’s chief economist. “Middle-class Canadians are staring down the barrel of eight years of no growth in real per capita incomes.”
"The bottom line is Budget 2023 delivers more fiscal stimulus when the economy is operating above capacity and global central banks are hiking interest rates to reign in runaway inflation,” added David Williams, BCBC’s vice president of policy. “As for spurring investment and kick-starting business growth, it targets a narrow slice of politically in-favour industries and does nothing for the broader private sector economy. Nor does the Budget hint that the government has any strategy to address Canada’s long term structural problems of feeble/no growth in per capita GDP, lagging productivity growth, and sluggish private sector capital formation. In short, the Budget confirms the OECD’s recent conclusion that Canada is on track to be the worst performing advanced economy over 2020-30 and 2030-60, with the lowest growth in per capita incomes.”
About the Business Council of B.C.
Now in its 56th year as the premier business organization in British Columbia, the Business Council of B.C. is a non-partisan organization made up of over 200 leading companies, post-secondary institutions and industry associations from across B.C.'s diversified economy and in every region of B.C. The Council produces exceptional public policy research and advocacy and convenes sectors, governments and Indigenous Nations in support of creating a competitive, and productive economy for the benefit of all British Columbians. For more information, visit www.bcbc.com.