Can we afford Ottawa’s whatever Fiscal firepower is needed?

The Conference Board of Canada’s Chief Economist Pedro Antunes offers the following economic insights on Wednesday’s (23) Speech from the Throne:

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Pedro Antunes, Chief Economist, The Conference Board of Canada

In a sparsely attended ceremony, Governor General Julie Payette delivered a speech detailing the government’s direction over their remaining mandate. The Speech highlighted a number of programs, targets and measures that address many important issues and challenges facing Canada and Canadians. However, implementing and funding many of these programs will be an immense challenge.”

Speech Highlights and Insights:

As expected, the near-term focus for the government is dealing with the health and economic implications of COVID-19.

In terms of health measures, the Speech highlighted some recent measures implemented to keep Canadians safe, including $19 billion toward the Safe Restart Agreement, $2 billion for the Safe Return to Class Fund, developing the COVID alert app, redirecting domestic capacity and securing supply chains for personal protective equipment (PPE).

Governor General Payette also discussed the government’s current plan to secure a vaccine for Canadians and to increase domestic capacity for vaccine manufacturing and distribution.

On the economy, the government intends to create one million jobs -roughly the remaining gap in employment compared to pre-COVID levels. Job creation would be achieved through the largest investment in Canadian history in education and training for workers with a focus on the knowledge economy.

Job creation will be implemented with a focus on youth and women by expanding worker training and certification, and extending the Canada Emergency Wage Subsidy (CEWS). The Canada Emergency Business Account (CEBA), which provides interest-free, partially forgivable loans to troubled businesses, will also be expanded.

Extending the CEWS until the summer of 2021 is something the Conference Board has been calling for as it supports hard-hit industries that will have trouble recovering until a vaccine is widely distributed. The CEWS is also an incentive for businesses to hire and keep their staff, and to help them survive while operating at reduced capacity.

The Speech reiterated the government’s recent announcement of an expansion to employment insurance so that it will cover contract and gig economy workers, but no additional details about the implementation or cost of that program were given.

Childcare was an important component of the government’s plan to help women progress in the workforce. Mention was made of replicating Quebec’s affordable childcare program across Canada but no details about implementation or costs were given.

The government has committed to delivering a fall economic update that will provide a fiscal outlook and plan. Whether all of the programs will be costed in the fiscal outlook remains to be seen, but the Speech referenced borrowing on long-term bonds at cheap rates to manage the debt.

Additionally, a few tax measures on the wealthy were mentioned, such as limiting stock option deductions and reducing corporate tax avoidance by digital giants. Measures that the Parliamentary Budget Officer had evaluated prior to the last federal election as highly uncertain in terms of potential revenue gains.

An important objective mentioned in the Throne Speech is to “fully” eliminate inter-provincial trade barriers. Under the current climate of rising global protectionism and strained international trade relations, enabling trade across provinces is a worthwhile endeavor. Complex non-tariff barriers have been a thorn in the side of Canada’s economy for decades, whether we can, in some way, make progress quickly on this front remains to be seen.

The Speech also mentioned immigration and forging ahead on free trade agreements as important elements in supporting Canada’s long-term competitiveness and economic growth.

Governor General Payette spoke for some time about improving access to health care and establishing new national standards for mental health care and long-term care while mentioning that this is a provincial jurisdiction. Undoubtedly, the provinces and territories and the federal government will have to work to find common ground on how to implement such a plan.

The government also intends to expand capacity to deliver virtual health care and to help people stay in their homes longer by increasing old-age security benefits when recipients reach age 75, and shoring up disability benefits.

While the government had committed funding in the 2019 Budget towards assessing a pharmacare program, Governor General Payette made mention of implementing a national universal pharmacare program and establishing a national formulary to keep drug prices low.

The government also referenced investments and other measures towards a wide range of current issues that concern Canadians. These include investments towards clean energy, rural broadband services, housing for indigenous and remote communities, and expanding regional air services.

Climate action will be achieved by retrofitting homes and businesses, expanding commuter transit, making zero emission vehicles cheaper, and building them and their required batteries in Canada, and establishing a grid for the charging of electric vehicles.

The government will cut its corporate tax rate in half for clean technology companies and continue to put a price on pollution with a revenue neutral carbon tax.

Lastly, there are plans to eliminate systemic racism, ensure clean water to indigenous communities, modernize police and the RCMP, and protect the French language in and outside Quebec.

The Speech from the Throne suggests that the government is intending massive expansions and changes to Canada’s social safety net, education system, worker training and health care at a time when government spending is  already at unprecedented levels in order to fend off the effects of a massive, COVID-induced economic crisis.

Most previously announced support measures, such as the Emergency Response Benefit or the wage subsidy programs, are temporary, allowing spending to return to normal as the economy recovers. In theory, the costs of the crisis will be a one-time, sizeable hit, adding significantly to the amount of debt that can be financed with very low bond rates.

However, many of the important measures announced in Wednesday’s (23) Speech from the Throne will add permanently to federal spending levels and to the growth of spending. Over the long-term, these can only be financed by expanding the government’s revenue base. Very little in the Throne Speech hints at how that might be achieved.

Pedro Antunes, Chief Economist, The Conference Board of Canada

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