Some of the big spending on budget 2021 is useful for business, but debt concerns remain

Budget watchers say the federal government is sending a message that governments, not businesses, can guide the recovery

News analysis

The Liberal government’s $ 101.4 billion new spending on COVID bailouts and growth stimuli announced in the federal budget on April 19 answers many of the questions posed last fall, yet its intent, timing and economic growth It raises many concerns about its impact on and the risky debt burden.

“They are planning a government to lead this recovery,” Philip Cross, a former Chief Economic Analyst at Statistics Canada, told The Epoch Times.

Macdonald-Laurier Institute Senior Fellows said relatively few Spending on growth initiatives For business, and any stimulus there, is directed at home.

The new Federal Reserve financial anchor aims to reduce federal debt as part of the economy and eliminate the COVID-19-related deficit. By the end of the budget forecast period of 2025-26, federal gross domestic product (GDP) is expected to settle at 49.2 percent. According to the budget, this debt burden remains the lowest in the G7, up from the 49.6% forecast for the November fiscal renewal.

However, Mr. Cross said that one of the long-term consequences of the pandemic is that he is insensitive to the government deficit, which is very dangerous if he feels the deficit is no longer a problem.

“Before the pandemic, people had a deficit of about $ 19 billion,” he said. “Today’s $ 30 billion deficit looks like an amazing restraint.”

The· $ 19 billion deficit 2017-18 came after the Liberal Party broke less than $ 10 billion in election promises. Government deficit in 2020– –21 is $ 354.2 billion.

Childcare hurdles

Government official said At a media briefing Of that $ 101.4 billion, about $ 60 billion is for economic growth and employment investment, and about $ 30 billion is for COVID-related bailouts.

Ottawa aims to spend $ 101.4 billion over three years, even though the economy is projected to grow 5.8% in 2021 and 4% in 2022. This will increase GDP by almost 2% over the November forecast.

“I really believe that the bigger danger today is not investing in a stronger recovery from the COVID recession,” Finance Minister Chrystia Freeland told reporters during the budget embargo. She said the best way to deal with debt is to invest in long-term growth.

The 724-page budget (for the first time in more than two years) proposes a national childcare program that will cost $ 30 billion and continuously $ 8.3 billion over the next five years. The federal government says this is also a way to increase the potential for economic growth. ..

But the initiative relies on the Federal Reserve, which works with states that can’t afford it, Cross said. So he doesn’t think the childcare initiative will get going.

Corporate growth incentives

Budgets coordinate support for businesses to help companies adopt new technologies. According to the budget, a compelling argument is that “from 2002 to 2019, labor productivity in digital-intensive industries grew 3.5 times faster than in non-digital-intensive industries.”

As an incentive for private companies to increase business investment, a source of productivity that has declined significantly in recent years, the budget will spend up to $ 1.5 million on eligible investments made between the budget date and the end of 2023. We are proposing to allow that. It can be used for most depreciable assets such as this credit machine, computer, software and office equipment.

It’s not a tax cut, but it will reduce federal revenues by $ 2.2 billion over the five years from 2021 to 2010, but how much SMEs can take advantage of it remains an open question.

“Many people may not yet be in a position to use it because of the heavy debt burden, but those who are thinking about buying equipment and other capital will help drive economic growth. It may be likely that a good purchase will move forward now, “Colinne Paulmann, senior vice president of national affairs at the Canadian Independent Business Federation (CFIB), told The Epoch Times.

“No free lunch”

Debt burden remains a concern for businesses, even though they welcome some new measures.

The CFIB said there is no way to help the average SME deal with the $ 170,000 in COVID-related debt it has assumed. However, its president, Dan Kelly, calls the Canadian Reconstruction Recruitment Program a “powerful tool” to help businesses bring back staff as the country heads for reconstruction.

Kelly added his voice to those who questioned the need to spend more than $ 100 billion, most of which are not COVID-related.

“We are concerned about the significant amount of non-COVID spending on this budget. Small business owners are worried that today’s deficit will turn into tomorrow’s taxes,” Kelly said. Said in a statement.

The Canadian Chamber of Commerce has realized some of its proposals, including the federal government’s expansion of wage and rent subsidies for business and providing leadership to reduce trade barriers between states. Was pleased.

However, the Chamber of Commerce has expressed concern about inadequate deficit reduction and reliance on achieving growth targets. The driving force for growth needs to be passed on from the government to the private sector, he said.Regarding childcare, the Chamber of Commerce said Currently, helping mothers working with tax credits is better than creating a national program.

The Canadian Business Council (BCC) praised the childcare initiative, but federal debt is projected to nearly double to over $ 1.4 trillion between 2025 and 26, assuming interest rates will not rise. .. The BCC said the budget was insufficient for “responsible … planning to avoid unnecessary new spending” and not enough to mitigate public debt.

“Canadians know they don’t have a free lunch. They can’t borrow $ 100 billion in three years without putting a heavy burden on future taxpayers,” BCC President and CEO Goldy Hyder said in a statement. It is stated in.