This policy brief highlights what the fall economic update means for Canada’s digital economy. The fall economic update is tabled by the Minister of Finance in the fall of each year. It updates Canada’s economic outlook, announces new policies and programs, and sets the stage for the annual Federal Budget in the spring.
The federal government’s fall economic statement, tabled on November 3, made headlines for its student, elderly, and low-income support and widespread investments in Canada’s workforce and green economy. The update arrives against the backdrop of elevated inflation and the increasing risk of a global economic slowdown.
In its economic update, the Department of Finance outlines two possible trajectories for Canada’s economy over the next five years. In the first, Canada’s GDP growth slows from 3.2% in 2022 to 0.7% in 2023, before rebounding in 2024, as increasing interest rates help lower inflation to the Bank of Canada’s target range of 1-3%. In the second trajectory—labelled the downside scenario—the Bank of Canada fails to achieve the proverbial “soft landing.” Persistent inflation in major economies and the resultant monetary tightening lead to an economic contraction in 2023 and a rebound thereafter.
The fall economic update also projects a deficit of $36.4 billion in 2022-23 (lower than the $52.8 billion deficit projected in Budget 2022), with a pathway to budgetary surplus by 2027-28. This fiscal buffer should give the government room to implement new spending programs in the coming months should they decide that stimulating a slowing economy is more important than not stoking further inflation through additional spending. For now, wary of the inflationary effect of high government spending, the government is “keeping its powder dry” in the face of an impending economic slowdown: accordingly, the economic update proposes to spend less and apply most of the gains from its better-than-expected fiscal results toward deficit reduction.
With an eye to inflation, the government has tabled a handful of targeted measures to help households most affected by the current cost-of-living crisis. For instance, the government proposes to make all Canada Student Loans and Canada Apprentice Loans permanently interest free and introduce automatic advance payments to households that qualify for the Canada Workers Benefit. Other announcements include the government’s intention to introduce a corporate-level tax on share buybacks and potential legislation to lower credit card transaction fees for small businesses.
Policy and Programs to Support Canada’s Digital Economy
For the digital economy, the Fall Economic Statement boasts a continued investment in workforce and skills development (with a strong focus on sustainable jobs), the development of a new, $15 billion “Canada Growth Fund” that will attract private sector investment in projects that reduce Canada’s GHGs, accelerate clean tech adoption, and capitalize on Canada’s abundant green energy resources, the modernization of Canada’s National Research Council Facilities, and the introduction of two new tax incentives to drive clean tech and clean energy adoption. A more detailed summary of the policy measures that will shape Canada’s digital economy is provided below:
Supporting Workforce and Skills Development
To support workforce and skills development, the federal government proposes to:
- Invest $802.1 million over three years, starting in 2022-23 to the Youth Employment and Skills Strategy, including funding to create job placements for young people and Indigenous Youth
- Invest $250 million over five years, starting in 2023-24 to:
- Establish a “Sustainable Jobs Training Centre,” which would support up to 15,000 workers in developing skills for a low-carbon economy
- Add a new sustainable jobs stream to the Union Training and Innovation Program, which would support up to 20,000 apprentices
- Establish a “Sustainable Jobs Secretariat”
- Increase Canada’s immigration targets to reach 500,000 immigrants in 2025 and provide an additional $50 million in 2022-23 to Immigration, Refugees, and Citizenship Canada to address immigration backlogs
Growing Canada’s Green Economy
To grow Canada’s green economy, the federal government proposes to:
- Launch its $15 billion Canada Growth Fund, which will attract private sector investment in projects that reduce Canada’s GHGs, accelerate clean tech adoption, scale up Canadian clean tech companies, and capitalize on Canada’s abundant green energy resources
- Drive clean tech and clean energy adoption through the introduction of two new refundable tax credits:
- A refundable tax credit equal to 30% of the capital cost of investments in electricity generation systems, electricity storage systems, low-carbon heating equipment, and ZEVs and ZEV charging infrastructure
- A refundable tax credit for investments in clean hydrogen, which the government will finalize following a public consultation, and introduce in the Spring Budget
Supporting Canada’s Innovation Economy
To support Canada’s innovation economy, the federal government proposes to:
- Provide $962.2 million over eight years, starting in 2022-23 to modernize the National Research Council’s scientific infrastructure
- Provide up to $1.28 billion over six years, starting in 2022-23 to improve key regulatory processes and agencies
- Consult with stakeholders on digital currencies, cryptocurrencies, stablecoins, and central bank digital currencies to support Canada’s financial sector legislative review
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 Akshay Kotak, Allison Clark, Erik Henningsmoen, Mairead Matthews, Mansharn Toor, Justin Ratcliffe, and Todd Legere, with generous support from the ICTC Digital Think Tank Team