This policy brief highlights what the 2023 budget means for Canada’s digital economy. The federal budget is published in the spring of each year and outlines the government’s main spending priorities.
Budget 2023, tabled on March 28th, is the government’s response to “two fundamental shifts in the global economy”—the urgent transition to a modern, clean economy and the growing trend towards “friendshoreing” critical supply chains. Canada is a major exporter of energy, which it exports mainly in the form of fossil fuels. As the global economy moves away from fossil fuels towards cleaner forms of energy and electricity, there risks being negative repercussions for Canada’s fossil fuel-related GDP.
But the trend towards a clean economy presents opportunities, too, and this is recognized in Budget 2023. One of the more closely aligned programs to the digital economy is the government’s “Made-in-Canada Plan” which focuses on developing new capacity clean energy, green jobs, and a green economy, all of which are technology-enabled. Critical minerals, which exist at the earliest stages of the ICT and clean tech supply chains are also a core focus of Budget 2023, with the federal government highlighting this and later stages of these supply chains as core opportunities for growth. More details about the government’s plan to grow these industries, and how Budget 2023 impacts Canada’s digital economy are provided below.
The federal government has highlighted the strength of the Canada economy relative to other G7 countries, and believes it is well positioned to weather an economic slowdown. However, the Department of Finance has developed multiple scenarios to address the increased odds of a more pronounced slowdown in the global economy is growing. With the current projections for revenues and new expenses, the country expects to add 40 billion to the deficit. Notably, it expects more downward volatility in commodity prices; the federal government expects to see less revenue from taxes on the sale of commodities. It also expects more transfers to the provinces and less income tax revenue. One positive affecting its financials is the expectation of lower employment insurance payments due to a strong labour market.
Policy and Programs to Support Canada’s Digital Economy
While being uncharacteristically silent on broadband infrastructure, open banking, and digital technologies, Budget 2023 introduces several smaller initiatives targeted at Canada’s digital economy. Digital economy stakeholders, including ICTC, have commented on the need to modernize Canada’s SR&ED program to ensure it adequately supports the development, retention, and commercialization of Canadian IP. In Budget 2023, the government reaffirmed its commitment to review the SR&ED program and consider the introduction of a patent box regime.
While silent on broadband infrastructure investments, Budget 2023 does announce the government’s intention to work with regulatory agencies, provinces, and territories to reduce “junk fees” charged by telecom companies, including roaming charges.
Public procurement presents a significant opportunity for Canadian technology businesses to secure first-buyers and start building a revenue stream. However, Canadian technology businesses are not always prioritized in public procurement processes. On this, Budget 2023 announces the government’s intention to work to place conditions on foreign suppliers’ participation in federally funded infrastructure projects and create a preference program for Canadian small businesses.
Digitalization can help communities reduce the risks and impacts posed by climate change, but communities face challenges adopting digital technologies. To help communities adopt connected technologies, data, and innovative approaches to climate resiliency, the government is launching a new round of the smart cities challenge. While providing new opportunities for productivity and growth, digitalization has also vastly increased ewaste. On this, Budget 2023 announces the government’s intention to consult on and implement a right to repair and implement a standard charging port for Canada.
Finally, to advance digital health, Budget 2023 proposes to provide $505 million over five years starting in 2023 to develop new health data indicators, advance digital health tools and an interoperability roadmap, and better use data in Canada’s healthcare system. Insufficient access to health system data has long been a barrier to the development and adoption of digital health tools.
Policy and Programs to Grow Canada’s Technology-Enabled Clean Economy
Budget 2023 suggests that reaching net-zero by 2050 will cost anywhere between $60 billion and $140 billion each year on average. To date, the government has primarily relied on its carbon pricing system and a variety of tax incentives to encourage private investment. This trend largely continues in Budget 2023, with the most significant financial contributions being provided through tax measures, as opposed to direct funding. Specifically, the “Made-in-Canada Plan” proposes to introduce:
The government also plans to leverage several existing funds to support growth in Canada’s clean economy. The Canada Infrastructure Bank will invest $20 billion, sourced from existing resources, to support the building of major clean electricity and clean growth infrastructure projects. The Canada Growth Fund, announced in the Fall Economic Statement, will deliver $15 billion to attract private capital in low carbon projects and clean technologies. The Critical Minerals Fund, announced in Budget 2022, will allocate $1.5 billion towards energy and transportation projects. And $1.5 billion of the Strategic Innovation Fund’s existing resources will be directed towards projects in clean technologies, critical minerals, and industrial transformation. New direct funding measures are limited, but include:
Finally, Budget 2023 announces 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.
While critical minerals are important for clean technology, Canada has a bad history of unsustainable mining practices. Gold mining has, for instance, resulted in arsenic and mercury pollution in various aquatic and terrestrial environments—much of which the government is currently working to remediate. To ensure the nation achieves a truly “clean” economy, critical mineral miners will need to learn from past mistakes and limit environmental degradation and contamination.
Supporting EDI and Workforce Development
Labour shortages present a significant barrier to Canada’s digitalization and adoption of clean technologies and clean energy solutions. Preparing workers for the future and meeting labour market shortages is therefore an important pillar of the federal budget plan. Many of the tax credits provided under the government’s Made-in-Canada Plan will include labour requirements. For businesses to receive the full 15% of the clean electricity tax credit, for instance, they will need to ensure quality pay and provide apprenticeship opportunities to help train the next generation of energy workers. Similarly, eligibility for the Clean Technology and Clean Hydrogen Investment Tax Credits will depend on at least 10% of transperson hours being performed by registered apprentices in the Red Seal trades. In addition to this, Budget 2023 proposes to top up the governments’ existing workforce development transfers by $625 million for a total of $3.625 billion transferred to the provinces and territories in 2023. Budget 2023 also proposes to provide $197.7 million in 2024 to continue the Student Work Placement Program, and $10 million over five years, starting in 2023, to expedite citizenship application processing.
Connecting with International Markets
Connecting with international markets is a core focus of Budget 2023. The government views the global trend towards “friendshoring” as an opportunity for Canada to green its energy trade and develop new export capabilities. Budget 2023 in large part seeks to make Canada a global supplier of clean energy and clean technology solutions. On this, Budget 2023 proposes to provide:
Budget 2023 also maintains Canada’s commitment to international tax reform through a two-pillar approach. This includes a plan to implement a Digital Services Tax (DST) effective January 01, 2024 and backdating to January 01, 2022 if the multilateral convention framework does not come into force.
This brief is part of ICTC’s policy updates series. ICTC provides timely updates on policy and political developments in Canada, including federal, provincial, and territorial elections campaigns, fall economic updates, annual budgets, and other major updates to policy and programs. Written by Allison Clark, Erik Henningsmoen, Mairead Matthews, Mansharn Toor, Justin Ratcliffe, and Todd Legere, with generous support from the ICTC Research and Policy Team.