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Federal budget contains important measures to spur growth but lacks clear fiscal direction, Business Council says

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Date: March 22, 2016

Related Issues Macroeconomic and Fiscal

The 2016 federal budget contains a range of useful measures to foster economic growth, create jobs and address inequality, but lacks a clear fiscal framework, the Business Council of Canada says.

As recently as last fall, government officials said they were committed to achieving a balanced budget within four years, and to reducing year by year the level of federal debt as a share of Canada’s Gross Domestic Product (GDP).

Today’s budget, however, sets no clear target for eliminating the deficit. Instead, the government foresees five consecutive years of budgetary shortfalls, declining from $29.4 billion in 2016-17 to $14.3 billion in 2020-21.

Over the same period, the federal debt is projected to grow by $113 billion, to $733-billion, while the debt-to-GDP ratio will remain essentially stalled at its current 31 per cent.

“There is a lot to admire in this budget, but what’s missing is an explicit fiscal anchor,” said The Honourable John Manley, President and Chief Executive Officer of the Business Council.

In its pre-budget advice to the government, the Business Council had recommended that Ottawa aim to achieve a debt-to-GDP ratio of 25 per cent by 2021. “When people want to achieve goals, setting a clear target gives them a sense of direction and helps them resist temptation,” Mr. Manley said.

Mr. Manley welcomed the government’s intention to invest $120 billion in infrastructure over 10 years, of which $11.9 billion is earmarked for the first five years. “Rather than trying to shovel a massive amount of money out the door in short order, the government is going to take its time to develop a responsible, long-term plan,” he said.

The Business Council welcomed a number of other specific measures in the 2016 budget, including:

  • An historic plan to improve socio-economic conditions for Indigenous Peoples across the country, including much-needed investments in First Nations schools, aboriginal skills and employment training initiatives;
  • Changes to the Canada Student Loans Program aimed at making post-secondary education more affordable for students from low- and middle-income households;
  • A $73 million commitment over four years to expand co-op placements and strengthen work-integrated learning programs at post-secondary institutions;
  • A planned review aimed at simplifying the tax system and eliminating poorly targeted and inefficient tax preferences;
  •  An extension of the Automotive Innovation Fund to 2021;
  •  An investment of up to $800 million over four years to support innovation networks and clusters as part of the government’s upcoming Innovation Agenda;
  • Further tariff relief for manufacturing inputs, and a plan to launch public consultations on eliminating tariffs on a range of food manufacturing ingredients;
  • Targeted support for fast-growing firms to help them attain the scale they need to compete globally.

Founded in 1976, the Business Council of Canada is the senior voice of Canada’s business community, representing 150 chief executives and leading entrepreneurs in all sectors and regions of the country.

Member companies employ 1.4 million Canadians, account for more than half the value of the Toronto Stock Exchange, contribute the largest share of federal corporate taxes, and are responsible for most of Canada’s exports, corporate philanthropy, and private-sector investments in research and development. Through supply chain partnerships, service contracts and mentoring programs, Business Council members support many hundreds of thousands of small businesses and entrepreneurs in communities of all sizes across Canada.

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