Finance Minister Chrystia Freeland is to present her mid-year budget update in the House of Commons on Thursday, focused on boosting investment in Canada’s clean energy industries in response to new US tax incentives signed into law last summer. Is.
The government is already ahead more financially than expected as inflation and a strong economic recovery boost tax revenues.
But after years of costly COVID-19 relief packages, the Freeland government believes there is a fiscal situation due to the need to reduce the deficit and prepare for the prospect of an economic slowdown in 2023.
“Obviously I’m not going to scoop up the finance minister, but this is a fall-back economic statement that will ensure fiscal responsibility,” said a Liberal MP from Montreal and parliamentary secretary to an associate minister of finance.
Freeland is not expected to do much to help Canadians cope with the crisis of living. In September it offered $4.5 billion to temporarily double the GST exemption, create dental care benefits for most children under the age of 12, and top up a $500 one-time national low-income renters allowance. -up provided.
The GST assistance will be felt from Friday as deposits in the bank accounts of 1.1 crore low and middle income families will start flowing. The legislation to make dental benefits and housing allowance top-up is still with the Senate.
The government has indicated that the mini budget will be much smaller, focusing on targeted investments rather than large-scale new programmes.
This would include a new tax on corporate stock buybacks to encourage companies to invest in their own operations, and introducing new or enhanced tax incentives to aid the development of clean energy, including hydrogen.
Both are part of the Inflation Reduction Act, which President Joe Biden negotiated and signed into law in August. Industry players have repeatedly warned the government that Canada needs to match the US or investment will flee the South and put Canadians out of work.
The act includes approximately US$400 billion in tax incentives, grants and loan guarantees for clean energy sectors, including electricity generation, electric cars and battery manufacturing.
It also includes a one percent tax on corporate stock buybacks, something Freeland expects to reflect in today’s update. The NDP wants to impose Ottawa on corporations that are getting rich at the expense of Canadian families.
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Matt Poirier, senior director of policy and government relations for Canadian Manufacturers and Exporters, told a House of Commons committee on Tuesday that the US Inflation Reduction Act comes with a red flashing warning light for Canada’s manufacturing sector.
Poirier said Canada’s response to the fall economic statement needs to include matching programs on this side of the border, or “at least a signal to industry that a fix is on the way.”
Innovation Minister Francois-Philippe Champagne said on Wednesday that the government was at the top.
“We will remain competitive,” Champagne told reporters after the Liberal caucus meeting. “We know that the Inflation Reduction Act and the CHIPS Act in the United States are catalysts for us to do more.”
The CHIPS Act, which was also signed into law in August, provides US$280 billion to encourage domestic research and manufacturing of semiconductors.
Liberals have faced criticism for prolonging pandemic spending and potentially fueling inflation. At the same time, Canada’s strong economic boom from the COVID-19 slowdown has been attributed to the fiscal response.
The Conservatives have led the charge against the Liberals for spending too much, but the Liberal caucus is also showing signs of concern.
Thunder Bay _ Rainy River MP Marcus Powlowski said it’s not so much about “rein on spending” as it believes the funds Ottawa gave to help people get through COVID-19 was, he was out of control, “which I don’t think is the case.”
Still, Powlowski said it’s a different time now in which interest rates are high and loan costs are rising.
“Now there is more opportunity to be frugal,” he said.
Former parliamentary budget official Kevin Page said he expected the fall in economic statement to be a traditional mid-year update, but could also be an opportunity for Ottawa to review its targets and spending rules.
“It is important for monetary and fiscal policy to work in a coherent manner,” Page said in an email.
Freeland has said on several occasions that the federal government will focus on fiscal restraint as the Bank of Canada works to bring inflation down with interest rate hikes.
Since March, it has raised its prime interest rate six times in a row, bringing it down from 0.25 per cent to 3.75 per cent. The central bank has also indicated that interest rates will need to be raised further to bring inflation down to its 2 per cent target.
The good news for the federal government is that its finances have improved significantly over the past year. The same inflation that forced Canadians to pay more for groceries, gas and home heating costs helped boost government tax revenue.
The federal treasury has also benefited from Canada’s strong economic recovery from the COVID-19 pandemic and high corporate profits.