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Transitional Budget Signals Canada’s Pre-election Priorities

By Yan Plante

/ Posted in Government Relations


For families, budgets are about money. For businesses, they’re about money and strategy. For governments, budgets are about money, strategy and — above all — communication.
 
The Trudeau government’s third budget, delivered today by Finance Minister Bill Morneau, communicated important signals to political supporters and rivals, government employees, investors, industries and, of course, voters as the government enters its pre-election year.
 
The signals begin with the budget’s timing. Usually, Canadian budgets are tabled in March or April. An earlier budget suggests an aggressive spending agenda, with lots of programs and initiatives requiring Cabinet and Parliamentary approval.
 
The early budget is a smart move by the Trudeau government, as this is arguably its last chance to launch big initiatives that could actually make an impact on voters before they pass judgment on the government in 2019. (Former Conservative finance minister Jim Flaherty made a similar timing decision in 2014).
 
As we examine the Budget’s key planks, it’s clear the signals were correct: it reflects an activist agenda that will excite its supporters — and an expensive one that will concern its opponents.
 
HIGHLIGHTS OF THE 2018 BUDGET

 
Increasing workforce participation of women: an overdue policy
As widely signalled (and, indeed, leaked) by the government in advance, the 2018 Budget was prepared using a government-wide gender-based analysis and includes measures to help narrow the gaps between men and women in the work force. While this sounds like a social-justice initiative that reflects Prime Minister’s Trudeau’s often-stated feminist values, it actually reflects an economic reality: in an era of slow growth, increasing the workforce participation of women can pay important dividends for Canada’s economy.
 
Will this play well with core Liberal and swing voters alike? Absolutely. According to a Globe and Mail story, women working full time in Canada still earn 74% of what men make. If we include data about the fact that men typically work more hours than women, the hourly wage rate still shows women earning 88% of men’s salaries. If we take the median salary, the government is telling us that women earn 31% less than men.
 
Minister Morneau also announced a gender equality policy in boardrooms, measures to ease access to capital for female entrepreneurs, and more funding opportunities for female researchers.
 
The government will inspire itself from what was done in Québec some years ago and will table legislation to ensure pay equity in the federal bureaucracy and in federally-regulated sectors, which would apply to approximately 1.2 million employees.
 
National Pharmacare Plan likely to come in a near future
The federal government already announced its intent to reduce prescription drug prices. The government has published proposed changes to the Patented Medicines Regulations – its first major review in more than 20 years. In response, Canada’s pharmaceutical companies have cautioned the government that these reductions will affect the sector’s ability to invest in innovation. Finding medicines that improve and save lives is something we all want to continue.
 
In Budget 2018, the Trudeau government announced the creation of an Advisory Council on the Implementation of National Pharmacare.
 
The former Ontario health minister, Dr. Eric Hoskins, will head this Advisory Council. True to form, the Liberals will begin a national dialogue that will work with experts from all relevant fields as well as with national, provincial, territorial and Indigenous leaders.
 
At the end of the process, the new structure will report to both the Minister of Health and the Minister of Finance. It will also make an economic and social assessment of domestic and international models, and will make recommendations to the government.
 
New spending for Indigenous services
Five billion will be spent over five years for Indigenous services and rights implementation, including new money for clean drinking water.
 
$508 million for a new national cyber security strategy
Fighting crime has never been as complex as it is today. With cyber-crime threatening our economic and democratic systems, the federal government will invest $500 million to partner with the private sector to improve Canada’s cyber defences.
 
$1.3 billion to protect Canada’s natural legacy
To meet Canada’s international goal of protecting 17 per cent of our lands and fresh water, the government is investing $1.3 billion in nature conservation, mainly to protect lands, water and species at risk.
 
Small business tax reform
After a very difficult political year, Minister Morneau announced the final details of the controversial reforms to how private corporations are taxed in this year’s budget. Budget 2018 proposes that “if a corporation and its associated corporations earn more than $50,000 of passive investment income in a given year, the amount of income eligible for the small business tax rate would be gradually reduced.”
 
“For the limited number of corporations earning that level of passive income, their corporation’s active business income would potentially be taxed at the general corporate income tax rate. It is proposed that the small business deduction limit be reduced by $5 for every $1 of investment income above the $50,000 threshold (equivalent to $1 million in passive investment assets at a 5-per-cent return), such that the business limit would be reduced to zero at $150,000 of investment income (equivalent to $3 million in passive investment assets at a 5-per-cent return).”
 
Concerns about reducing small corporations’ ability to make passive investments fuelled much criticism of Minister Morneau on his first draft proposal; time will tell us if this decision will put out the fire, or if it will be considered as a new tax and inflame opposition once again.
 
Parental leave
Similar to existing provisions in Québec, the Government of Canada will establish a parental leave for the second parent, for up to five weeks.
 
Innovation
As it was announced a few weeks ago with the super cluster program, Canada’s government continues to prioritize innovation in its economic plan. Billions of dollars were announced for research.
 
Tomorrow’s generations will pay today’s bills: a decade of deficits
Prime Minister Trudeau pledged to run three modest deficits of $10 billion during the 2015 election campaign. He quickly decided not to comply with his promise. In fact, the government ran three consecutive substantial deficits close to $30 billion a year. Canada will continue to run deficits for a very long time, long enough that the government has no clear deficit exit strategy. To this point, the 2018 Budget doesn’t signal a date for achieving a balanced budget. Indeed, it predicts that even in 2023, Canada will still run a deficit of $12.5 billion. At this pace, Canada is set for at least a decade of deficits. Some economists will likely raise concerns that running deficits when the economy is strong could limit the government’s ability to stimulate a future struggling economy when it needs a boost. One day, the economy will slow down – there will surely be a need for dialogue in the near future about Canada’s readiness for such an eventuality.
 
 
WHAT’S NEXT?
 
Budgets help governing parties set the agenda for media coverage and political conversation — at least for a short time. If the Budget is well-received by Liberal supporters and swing voters, the Prime Minister, Ministers and Liberal Members of Parliament will seek to sustain the Budget’s story for several months.
 
Opposition leaders and MPs will have their own “anti-Budget” campaigns, but these will likely shift from attacking the whole Budget to zeroing in on its most controversial planks — particularly those that could shift voters into their camps. And naturally, if the government faces new challenges or scandals — real or perceived — we expect the opposition to seek to “change the channel” quickly.
 
Canada is about to enter an intense pre-campaign period. With fixed election dates, these unofficial campaigns tend to last longer. Therefore, by the end of this year, we will be see a shift in tone by all parties towards campaign-style communications.
 
We can safely predict that the 2019 Budget will showcase both the government’s accomplishments and most (but not all) of its pre-election platform. Watch for it to be tabled in April 2019, closer to the launch of the campaign period. Exciting times ahead.
 
 
Please let us know how Argyle TACT Public Affairs can help you. We are available to discuss our insights into how government decisions can affect you and your business. Please contact Yan Plante at yplante@argyletact.com.

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