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Budget 2022 marks transition from old to new economy

Are green growth, economic growth and equitable growth really compatible?

Federal Budget 2022 turned out to be a sober document, contrary to media hype about New Democrats hijacking the agenda, fears of reckless spending and Corporate Canada’s push to return to 1990s-era budgeting. Instead, this budget charts a middle-of-the-road approach, bending over backwards, it seems, to dispel fears that the Liberals have become socialists. It will likely disappear from the headlines in days because it does not fuel partisan controversy. 

Even if the media moves on quickly, the budget is worth a second look. For the first time in several years, the budget is not designed to appeal to groups of voters; it sets the table for a three-year agenda. Canada needs serious public policy debate and this budget could prompt more of that. Gone is the superficial appeal to “the middle class and those wishing to join it.”  Equity issues are embedded, but less strident; that may be positive because it focuses more on the common good than what can polarize. Many social justice groups will find it weak, too little and a missed post-Covid opportunity.  

Budget 2022 combines new economy approaches with old economy language. It ends the practice of pitting social programs and the environment against economics, but the shape of the new economy is still fuzzy. Below are a few glimpses of policy areas that call for deeper analysis.

Long-term integrated economy

Budget 2022 pursues a three-pronged approach, each with ethical as well as practical challenges:

  1. Grow Canada’s workforce through immigration, skills development and expansion of the foreign worker program. 
  2. Shift to a green economy with direct funding, regulatory changes and tax incentives for private investments.
  3. Encourage innovation with the creation of new agencies, policy changes and investment incentives.

Each of these involve ethical and practical issues that warrant more in-depth study by MPs and parliamentary committees, instead of partisan grand-standing.  

Workforce strategy

Budget 2022’s piece-meal approach to solving Canada’s labour shortage issues may solve some immediate problems, but it is open to challenge for unintended consequences, missed opportunities and ethical blind spots.

  • Settling immigrants and refugees requires more than just getting them into jobs.
  • More reliance on temporary foreign workers, who are tied to individual employers and enjoy fewer rights, raises significant ethical issues.
  • Covid showed the importance of the care economy and its workers. Integrating the care economy into the mainstream economy requires more attention to how we treat workers in health care, child care and long-term care. 
  • A much needed reform of Employment Insurance is missing, with only a few tweaks made to an out-of-date system. 

Transitioning to a green economy

The biggest wager in the budget is tying our children’s future environment to the success of carbon capture and electric vehicles as the major thrusts for emission reduction. Questions remain about whether carbon capture works and is sustainable. The choices in this budget seem to give priority to technical fixes as the solution for climate change, rather than deeper shifts in the ways we consume and relate to creation. In addition, these solutions are very expensive compared to strategies based on conservation, demand reduction and renewable energy. Both investing in new technologies and changing the way we relate to the non-human parts of creation are important for a more sustainable economy. More attention to this is needed before Canada can say it has a just and effective transition plan in place. 

Investment and innovation

Budget 2022 sets up two new agencies to leverage private investment in innovation and a green economy. While this effort to break down the old public/private dichotomy seems well intentioned, similar initiatives in the past were not successful. Proposals to establish a permanent Council of Economic Advisors and a union advisory table may help to bridge current gaps. If the government could bring those two together and deal with the challenges of provincial jurisdictional disputes, Canada might have a bridge to a new, more innovative and sustainable economy.  

Fiscal Responsibility 

The Liberals are using Budget 2022 to show that they are fiscally responsible. Finance Minister Chrystia Freeland channels Paul Martin’s language when she shows that both deficit and debt are declining and under control. Budget 2022 reaffirms use of the debt to GDP ratio as the barometer of what Canada can afford and the benchmark of fiscal responsibility. 

A deeper difference between old and new approaches to fiscal responsibility shows up in what is considered essential and what is considered discretionary spending. Old school critics consider child care, dental care and mental health as “nice-to-have secondary social programs” to add when we have raised money in traditional economy modes. But for Freeland and new economy thinkers, these are part of a sustainable economy that will bring more benefits than  their costs. Some analysts think Budget 2022 could go even farther to integrate the care economy into mainstream economic indicators.

Old school language like a program review to save $3 billion and a strategic policy review, which promises $6 billion-a-year in savings, raises fears of Harper-style cuts based on anti-government attitudes. These proposed reviews could bring about positive adjustments in the public service to enable more flexibility with better work/life balance and a reduced carbon footprint.

Tax reform proposals in this budget are modest: 

  • The one-time tax on banks is explained as recovery of funds banks gained from covid fiscal policies, not as a wealth tax. 
  • The narrow scope of the corporate tax increase leaves out other wealthy actors who also benefit from public services, while tax rates for some smaller businesses are reduced. 
  • A longer-term tax reform agenda includes Canada taking on a more active role in global tax reforms. Since Canada’s economy is tied to other countries, it makes sense to try to reduce wealth gaps at home and on a global level. 

Housing 

Budget 2022 offers a multi-layered strategy that addresses factors such as house-flipping, blind bidding and foreign buyers, as well as basic supply and demand. It reverses decades of government withdrawal from housing on the premise that the private sector would do it better. The text hints at a shift to treat housing as a basic human need instead of a commercial commodity, investment tool and status symbol. Many housing advocates find the mix of specific policies inadequate for those most in need. While Canada’s National Housing Strategy does recognize housing as a right in Canadian legislation, this budget does not mention that.

Reconciliation

More resources are committed for various Indigenous services, including funding for more discoveries of unmarked graves. At the same time, the pace of systemic reforms, such as implementation of the reforms in Indigenous Child Welfare, is very slow. That could be a result of being careful or it could signal stall tactics, something First Nations, Metis and Inuit leaders identify. Giving priority to children to prevent negative impacts for another generation, warrants more ambition at all levels of government in Canada.

Health Care

Budget 2022 sets the table for systemic reforms in the health care sector. It promises extra funds to reduce surgery backlogs and other health care tension points, and also acknowledges that Canadian spending on health care is higher than comparable countries while outcome indicators rank below our peers. The budget provides no direction for, and makes no reference to, addressing inequitable access. This leaves health care advocates concerned about the next steps in long-awaited health care reform. 

Defense and international assistance

As well as an increase in defense spending, Budget 2022 calls for a review of defense policy.  Freeland used her budget speech to make a strong statement about the war in Ukraine. Democracies will not be safe, she argued, until the “tyrant is vanquished,” which means “hard power, not pacifism.” The budget includes some increase in international assistance, including humanitarian aid, for the first time in years. What priorities will emerge from a review of defense policy and related international relations could shift Canada’s role on the global stage as well as spending priorities at home. 

Charities

Those who are involved in churches and charitable organizations will appreciate a proposed change to Canada Revenue Agency rules. Registered charitable organizations will be allowed to provide resources to organizations who are not registered, provided they meet certain criteria for accountability. This allows more flexibility to meet the needs of groups who are less likely to be officially registered. 

Rising to the challenge

Budget documents are not leisure reading, but this one includes useful analysis of factors that need to be considered as Canada moves forward post-covid. Freeland tries to speak to both Bay Street and Main Street – a critical move during uncertain times. She steps out of the old boxes that traditional economists use, but also uses their language. She names the challenges that come with a high level of uncertainty, which add risk to changes that will show benefits in the future. Rather than a quick pass or fail judgment, citizens, as well as MPs, would do well to engage in many of the important policy debates that will continue to shape Budgets 2023, 24, and 25.

Author

  • Kathy Vandergrift

    Kathy Vandergrift, a public policy analyst, brings experience in government, social justice work and a Master’s Degree in Public Ethics to her reflections.

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