Inflation, climate change and war: This budget has a sense of panic about Canada’s future

Build Back Better was just so 2021.

The valiant talk, the catchy alliteration, the big spending in the name of a beautiful economy for everyone that was supposed to come at the end of the pandemic — those have been replaced in this year’s budget by pervasive uncertainty, crisis after crisis, and a shortage of capital to confront the cascading challenges.

The old pandemic mantra of “we’ve got your back” has become a focus on something far less sexy: retooling how the Canadian economy works so that we can weather several incoming storms hitting us all at once.

“There is measure after measure about increasing supply,” Finance Minister Chrystia Freeland said.

Inflation, a global slowdown, climate and conflict are upon us, and there’s a sense of panic woven throughout this budget of realpolitik: if we don’t do this retooling right now, we will falter.

That’s led to some experimentation with fiscal levers which could lead us there — but it’s far from guaranteed.

The budget shows us bluntly that Canada lags the world, and even our own past, in investment — that crucial ingredient for adapting to change and building on our strengths. The budget also states that despite all the plans and billions in government funding for cutting emissions and renewing our infrastructure, we are many miles away from finding all the money we need to live up to our own ambition.

The finance department figures we need investment of between $125 billion and $140 billion every year — yes, every year — to get to a net-zero economy by 2050. Right now, we see between $15 billion and $25 billion.

“No one government can close that gap,” the budget document states.

The biggest piece of the experiment is a hefty tax credit for carbon capture and storage — $2.6-billion in writeoffs for the oil and gas sector to encourage it to develop more capacity to store underground the carbon dioxide emissions that come from extracting energy.

Canada is making its name around the world for leaning hard on this technology, and the budget bets big that the tax credit will allow the country’s fossil fuel sector to produce and sell cleaner oil and gas as we all transition to a low-carbon economy.

The second bet is on $4 billion for critical minerals. Over eight years, the government will provide a tax credit to find and mine the metals the world desperately wants for the production of greener and more digitally advanced phones, computers and cars. Canada has lots of these minerals, and the budget envisions the country’s capital markets, manufacturers and workers alike piling into this zone to compete against the likes of China.

The move plays to our history as a mining power, but will require the full participation of Indigenous communities and a yet-to-be-established supply chain to connect the raw materials with the companies that want them.

And the third bet is on bureaucracy — two new agencies that will operate at arm’s length from government, but use government money to partner with the private sector. The Canada Growth Fund will be a $15-billion financial institution that takes on risk for investors who are hesitant to put their money in Canada in case we change direction on carbon pricing or project approvals. And the Canadian Innovation and Investment Agency will use its $1 billion to finance fresh new ideas from Canadian businesses, adding to the plethora of government programs that support research and development.

But the model here is the Canada Infrastructure Bank, which has been far from the success it was touted to be in terms of leveraging private sector investment. The agencies are still very much in the design stage, so we can hope — but certainly can’t assume — they’ll be more focused on moving quickly, delivering returns and persuading the private sector to jump in with both feet.

The budget manages to propose all of this with an eye on inflation — that other crisis that is very much in our midst. Some of the announced government spending is paid for by repurposing funds from elsewhere, promising to trim $9 billion in fat, and pulling in an extra $16.5 billion in new taxes from banks and corporations.

It means just $56 billion in new money up until 2026-27, and the spending track has not ballooned as many conservatives and inflation-fighters had feared. The deficit this year will be half of what it was last fiscal year, and is set to drop steadily.

This, too, is an experiment. Talk of recession and stagflation is in the air. The world economy is under strain from global inflation, the war in Ukraine, protectionism and supply chains that are still in knots from the pandemic. In the face of previous slowdowns, the federal Liberals have tended to overwhelm the public with social programs meant to cushion the blow.

The experiments are worth investing in, especially if they succeed in turning Canada into a competitive, prosperous producer of goods and services the world needs for a low-carbon future.

But let’s not forget the lessons of the pandemic that initially inspired the now-forgotten Canadian version of Build Back Better — that we can’t get through tough times without a workforce that is deeply inclusive, healthy and participating at full force. It’s an idea that has helped carry us through the dark days of COVID-19, and without which we’ll falter as the crises keep coming.

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