By NATHANIEL ERSKINE-SMITH
In these uncertain times, the federal budget was modest and measured. It laid the groundwork for meaningful cooperation in this parliament. And it made a series of down payments to address major national and global challenges, including housing affordability, climate action, better healthcare, and military capacity.
In advance of the budget, the Liberal government struck a supply and confidence deal with the NDP to provide important stability to our parliament and to deliver on our many shared priorities. If the deal works, the only practical constraint to delivering on our shared agenda should be our continued commitment to fiscal sustainability.
Heading into budget season, in an inflationary environment that demands greater prudence, it was an open question whether that commitment to fiscal sustainability would hold firm.
In answer, as former PBO Kevin Page concluded, the budget was “surprisingly measured, modest, and responsible.” That analysis was largely echoed by economists Sahir Khan and Brett House on a recent Uncommons podcast episode.
With economic growth generating $85 billion in additional fiscal room, Budget 2022 offered $31 billion in net new spending over 5 years ($62 billion in total new spending, with half of that offset by new taxes, cost reductions, and reprofiling funds). The remaining $50+ billion will reduce our deficit and ensure fiscal sustainability and flexibility.
Debt-to-GDP remains low relative to other major economies and a declining ratio remains the core fiscal anchor.
Carrying costs also remain low by historical standards and we’ve locked in low-interest rates by issuing long-term debt.
Of new spending (spread over five years), the budget’s overall focus was growth and affordability:
• $12 billion for climate action, including work to expand clean electricity, protect nature, advance innovation, and reduce emissions in the transportation, building, and agricultural sectors.
• $5.5 billion to drive growth, including work to launch a critical minerals strategy, expand immigration, create an innovation and investment agency, and strengthen supply chains.
• $10.5 billion to advance reconciliation, including work to address past harms and discrimination against kids, support health and education, and deliver infrastructure – from housing to clean water – for Indigenous communities.
• $5.3 billion to deliver on the new promise of dental care for families with an income of less than $90,000 and set the table for greater parliamentary cooperation.
• $10 billion to make housing more affordable, including work to deliver a third round of rapid housing, build more co-operative housing, support first-time buyers, and establish an accelerator to encourage cities to add supply much more quickly.
• $7.2 billion to strengthen military capacity and an additional $940 million to support Ukraine, including the expansion of Operation UNIFIER and military aid.
There were, of course, missed opportunities. We set aside only $732 million towards global vaccine equity (short of our fair share), and only $100 million to address the opioid crisis (short of our $500 million election promise). I expect others will have their own examples.
On a number of fronts, the spending measures should be considered down payments.
Provinces will continue to clamour for larger health care transfers. We’ll need additional climate action on a credible path to net zero. Defence spending isn’t yet at two per cent of GDP. And on housing, the scale of spending doesn’t yet match the scale of the supply side challenge, and we aren’t yet tackling the excessive financialization of housing on the demand side.
A national early learning and child care system will exist because of bold government action and we need a similar level of ambition to deliver on our climate commitments and ensure that the housing market doesn’t leave an entire generation behind.
It won’t be an easy path ahead. Our finances will be challenged by an aging population, and uncertainty in Ukraine and tighter monetary policy will affect the outlook for economic growth. If we are to see through all of our existing commitments (from a new disability benefit, to pharmacare, to NATO’s two per cent), we’ll need a thoughtful review of government performance in current spending and a more serious conversation about taxation, particularly on extreme wealth.
But if this budget is any indication, regardless of the challenges that lie ahead, we will remain committed to both social progress and fiscal sustainability.