Letters January 21, 2024

Implementation to enhance prosperity for Canadians

Goldy Hyder – President and Chief Executive Officer, Business Council of Canada

Economic Strategy Public Finances

Letter to the Right Honourable Prime Minister Justin Trudeau, P.C., M.P., in advance of the January 2024 cabinet retreat.

Dear Prime Minister,

In advance of your cabinet retreat this past summer we wrote a letter urging you to focus on delivering policy solutions in three priority areas. Specifically, we advised your government to strengthen the Canadian economy by adopting a meaningful fiscal anchor, delivering on your promised permitting reform plan, and seizing the energy transition opportunity.

Unfortunately, sufficient progress has not been made in any of these priority areas. The government’s failure to act with urgency has weakened and worsened our domestic economic growth. Consequently, Canadians continue to struggle with affordability challenges driven by high interest rates, persistent inflation, and low productivity.

When you meet with your cabinet next week, we are once again respectfully asking you to address these issues as a matter of priority.

Adopting a Meaningful Fiscal Anchor

A year ago, the Business Council of Canada and former Bank of Canada Governor David Dodge released Assessing the Potential Risks to the Sustainability of the Government of Canada’s Current Fiscal Plan. Among its recommendations, the report called for government to adopt a new fiscal anchor based on a debt-servicing cost-to-revenue ratio.

Instead, your government unveiled a new fiscal anchor in its 2023 Fall Economic Statement (FES) – one that would keep deficits below 1 per cent of GDP in fiscal years 2026-2027 and future years. Yet it was not clear in the FES how this new target would be achieved. Using the government’s own figures, with GDP forecast to be $3,202 billion in 2026, the deficit would be capped at $32 billion.

Today the deficit is 1.4 per cent of GDP. Assuming no new taxes and lower economic growth as estimated by the Bank of Canada, a 0.4 per cent reduction implies spending cuts of at least $12 billion per year or $50 billion over four years. Given your government has increased expenses annually, on average, by well over 5 per cent each year since 2016, the proposed anchor is just not credible.

Delivering a Plan to Improve Impact Assessment and Permitting

Unfortunately, the government’s track record on implementing its budget commitments is no better than its spending projections. Budget 2023 contained a clear promise that “by the end of 2023, the government will outline a concrete plan to improve the efficiency of the impact assessment and permitting processes for major projects.” This promise was unfulfilled.

As of this writing, the government has yet to produce even a draft plan for consultation let alone the promised ‘concrete plan’ to clarify and reduce timelines, mitigate inefficiencies, and improve engagements and partnerships with businesses, communities, and stakeholders. Moreover, no public explanation has been given by government officials as to why this critical budget commitment was not honoured.

To the extent that any excuses have been offered unofficially, the blame for delay has been directed towards the Supreme Court of Canada’s ruling in Reference Re: Impact Assessment Act (2023 SCC 23). This, notwithstanding, the government was fully aware the matter was before the Court when it made the Budget 2023 commitment.

Delays in correcting the federal project approval process create uncertainty, discourage investment, and push Canada farther away from achieving its goal to transition to a low carbon economy. As a result, Canada and Canadians are falling behind.

Seizing the Energy Transition Opportunity

Perhaps nowhere has the government’s inability to deliver on its commitments been more frustrating than the promises it has made to accelerate investment in the energy transition and level the playing field with the United States.

Canadian companies and global investors are still waiting for the long-promised tax credits to become law so that they can de-risk their investments in clean technologies. The government has also failed to deliver on its promise to create a carbon contract for difference program, while the recent decision to pause the Canada Innovation Corporation compromises the ability to advance emerging technologies in Canada.

Any discussion about the energy transition must include measures to ensure that projects create opportunities for Indigenous Peoples. While the fall economic statement committed the government to developing an Indigenous Loan Guarantee Program, it said no further steps would be announced until Budget 2024. Here again, delays are causing disruptions, in this case especially to the detriment of Indigenous Peoples.

As we wrote to you on the eve of your last cabinet retreat, addressing these priorities would have an immediate, positive impact on the Canadian economy and would enhance prosperity for all Canadians. Failing to address the above priorities, however, invites greater uncertainty and exposes Canadians to a further erosion of their living standards.

Yours very truly,