Honourable senators, before I begin my remarks on the Senate inquiry into the federal budget, I want to start by underlining what the inquiry is and what it isn’t. It is not a vote on whether or not to approve the budget unveiled by the Minister of Finance, nor is it an effort to amend the budget or to move a motion to condemn or improve it. Senator Gold, I want to assure you that my views on the budget bill and the Senate’s approach to the budget bill have not changed. However, this is an opportunity for the Senate to engage on what it does best — discuss, evaluate and offer alternatives to make the outcomes better for Canadians. It is in this spirit in which I make my remarks.
It was heartening last month to see the words productivity, innovation and fiscal anchor dot the pages of the Minister of Finance’s 2022 budget. It was also encouraging to see the minister frame the budget using the following words, and I quote:
. . . now is the time for us to focus—with smart investments and a clarity of purpose—on growing our economy and on making life more affordable for Canadians. . . .
— and —
— . . . to tackle the Achilles heel of the Canadian economy: productivity and innovation.
These are important goals, made more so by the increased anxieties Canadians are feeling at a time when we expected a reprieve from the apprehension triggered by the COVID pandemic. The war in Ukraine has exacerbated our worries over inflation, interest rates and personal economic security. This budget is even more consequential than we would have imagined a few short months ago.
I commend the government for what appears, at the outset, to be an evolving policy direction in favour of growth. It is just as important, however, to evaluate whether the specific measures announced in the budget are adequate for achieving this policy intent.
In this, I believe, the budget has some ways to go. Given what I believe is an overemphasis on distributive programs and an underemphasis on improving our collective prosperity, the budget lays out, in the minister’s words, three pillars designed to grow the economy and make life more affordable. The first focuses on investments in Canadians themselves through support for housing, skills development, immigration and child care; the second supports a transition to a greener economy through spending on carbon capture, incentives on electric vehicle purchases and investment in mining of critical minerals; and the third focuses on economic growth, underpinned by a new innovation and investment agency and a growth fund. Each of these pillars are crucial components in growing the economy.
Welcoming more immigrants and focusing on training can help fill the needed employment gaps while mining minerals that are essential to developing a greener economy with reliable supply chains can put Canada on a leadership track.
As an aside, these two pillars are also important parts of an economic report put together last fall by the Senate Prosperity Action Group, of which I am a member. I’ll speak more about that later.
The third pillar, economic productivity, is one that I believe requires clearer and stronger focus. Indeed, the minister herself said in her speech that Canada’s underperformance in this area constitutes an insidious problem. I agree completely, which is why I think we must be more creative, more focused and more ambitious.
Take, for example, the two lynchpin initiatives designed to tackle the issue: a new $15 billion growth fund and the creation of a new innovation and investment agency, which will provide advice. It seems to me both these instruments already exist in various forms. How, for example, will they be different from the Canada Infrastructure Bank; the Venture Capital Catalyst Initiative; the National Research Council of Canada Industrial Research Assistance Program, or NRC IRAP; or a myriad of other initiatives already in existence? Public investments like those contemplated in the growth fund won’t really lead to improved productivity if we don’t better incentivize innovation.
Parenthetically, the growth fund is actually not even new money, given that it will be sourced from the existing fiscal framework. In fact, the $6 billion for growth will come from a reprofiling of the infrastructure spending, presumably from the aforementioned Canada Infrastructure Bank, which I dare say was slow in getting started.
I would prefer to have seen the budget apply a greater emphasis on the innovation side of the equation. The notion that our country’s ability to innovate is constrained only by our inability to commercialize those areas is erroneous. Canada’s capacity to do industrial research is inadequate, and we spend too much time on incremental innovation and not enough pursuing groundbreaking radical inventions. As Robert Asselin of the Business Council of Canada wrote in a recent article in the Financial Post, where would the health of Canada’s and the world’s citizenry be today without the breakthrough development of mRNA vaccines? How would we reach our climate goals without revolutionary initiatives in carbon emissions reduction? Our performance record on innovation and the digital economy has so far been mixed at best.
According to The Global Competitiveness Report 2019, published by the World Economic Forum, we are ranked sixteenth internationally in innovation capacity, eighteenth in patent applications and twenty-third in R&D expenditures. Similarly, OECD and World Economic Forum data rank us nineteenth in university-industry collaboration. With respect to growth overall, the average annual Canadian GDP rate dropped by half since the beginning of this century when compared to the years between 1960 and 2000.
As mentioned in the Senate Prosperity Action Group’s report last fall, we have much to overcome, including the fact that we lag behind other nations in commercializing innovations. We have failed to develop an adequate pool of talent in the STEM sector, we are slow to adopt new technology and we lack availability of high-speed internet in remote areas.
Solutions are too numerous to itemize in a short speech, but we could start by spending more on research and development on high-risk and mission-driven research. The United States’ DARPA comes to mind. We could make other strategic investments in supporting entrepreneurship and in the scaling up of Canadian-based companies. We must also look at co-investing with venture capital and commercialization opportunities such as biotech. Regulatory burdens should be reduced.
Before turning to some other potential remedies, I would be remiss if I failed to comment on the fiscal anchors upon which this budget rests. As the minister mentioned, dealing with the deficit incurred during the pandemic is imperative. The anchor put forward in the budget is to simply ensure that the country’s debt-to-GDP ratio continues to decline. The view of the Prosperity Action Group is that we should go further if we wish to maintain our nation’s fiscal advantage as a G7 country with the lowest debt-to-GDP ratio pre-pandemic. Rather than the anchor proposed in the budget, the government should limit debt servicing costs to no more than 10% of the government revenues and cap federal program expenditures as a percentage of GDP. Doing so would form the basis of a fiscal management plan that allows the country to continue to make appropriate investments on high-priority economic and social programs while reducing expenditures on those that have been shown not to work.
As it stands, the budget calls for new net spending of $56 billion offset by a projected $26 billion in savings that stem from a growth-enhancing tax of $6 billion on banks and insurers, another $10 billion from tax enforcement as well as other savings from government efficiencies. This is not a huge fiscal impact, but it still calls for increased spending in areas like dental care, defence commitments, subsidies for electric vehicles, housing, reconciliation and others.
Moreover, I’m concerned that the assumptions for the fiscal framework are based on overly optimistic economic assumptions given the uncertainties facing Canada and the world at large. The projection for inflation, for example, is 3.7%, which is at the more modest — and dare I say hopeful — end of the spectrum. While these projections are plausible, slight deviations can throw the plan out of whack completely.
In the few minutes I have left, I would like to turn to a final suggestion for promoting growth, which is the need for renewed fiscal cooperative federalism. Aside from some of the prescriptions in the budget and others that I outlined earlier, I believe the government could have taken lessons from the way in which all orders of government cooperated in tackling the pandemic. The successful federal-provincial-territorial approach in dealing with the coronavirus ought to be a model for forging a new path for sustainable, inclusive shared prosperity in Canada — a grand bargain to be forged between government, business, Indigenous peoples, racialized communities, Canadian labour unions, hard-to-reach citizens and all other members of civil society.
To that end, the Prosperity Action Group recommended last fall that a new body, which we labelled the prosperity council, be established to spark energy and foster dialogue in pursuing solutions to our economic challenges. It’s way past time, of course, that we dealt with interprovincial trade barriers, variable apprenticeship criteria and barriers to labour movement, not to mention how we deal with other interjurisdictional challenges like the carbon tax, creation of new daycare programs and the like. A body such as the one we propose would also keep our governments accountable by reporting on how we are competing on key performance indicators that measure economic progress. How does Canada fare vis-à-vis other nations when it comes to the ease of doing business, public spending on training or global talent attraction? These are measurables that exist and may be included in a government plan as recommended by the Prosperity Action Group.
In my view, there aren’t enough of them in the budget tabled last month, and a new prosperity council would lay out these targets in much finer detail for all to see.
Such a renewal might also go some way towards ameliorating the federal-provincial-territorial differences that often emerge when Ottawa develops shared programs that far too often result in decreasing the share of federal contributions to those very programs.
While I am not inherently opposed to new programs for dental care, Pharmacare, long-term care or housing, I am concerned these programs adequately recognize provincial jurisdiction in design and sustainability. To be sure, we need to perfect our social union, but frankly, we also we need to enhance and focus on our economic union — hence the need for a grand bargain. Aside from whether a national prosperity council like we are suggesting is the perfect model to follow, it is imperative that some kind of wide and ongoing national conversations on the economy take place. Premiers and the Prime Minister have met, by my count, some 39 times since the onset of COVID. Surely we can organize four or five first ministers meetings on the economy.
Let me conclude by saying that we are in an age during which polarization and identity politics sow increased mistrust among Canadians for their institutions. For our governments to achieve anything approaching consensus on where our economy should go, we need dialogue and to walk in each other’s shoes. So while I do think that the budget may not have completely lived up to the rhetoric, developing a plan for prosperity for Canada is a project that goes well beyond an annual economic plan. I urge the government to reach out to all Canadians to build trust and a culture of innovation that will make us resilient in the face of economic challenges to come and become a global leader again.