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2018 Federal Budget Overview

Published on
February 28, 2018

Finance Minister Bill Morneau tabled the Trudeau Government’s third budget in the House of Commons yesterday afternoon with an emphasis on science, gender equality and preparing Canadians for the jobs of the future. Budget 2018 titled “Equality + Growth for a Strong Middle Class,” continues a number of the Trudeau Government’s stated goals on gender parity, reconciliation and enhancement of the Canada Child Benefit. “It is a plan that puts people first – that invests in Canadians and in the things that matter most to them” said Morneau in his address.

The Government ended the 2017-2018 fiscal year on a better than projected deficit of $ 18.1 billion, down from $28.5 billion last year with a $3 billion adjustment for risk factored in. Once again, the five year fiscal outlook contains no plan to end deficit spending in the short term with the closest projection to black being 2022, when the deficit drops to $12.3 billion, confirming that a balanced budget is out of reach for the Trudeau Government in their first mandate. The ratio of Federal Debt to GDP is up, down to 30.4% from 31.5% last year, projecting to drop to 28.4% by 2022-23. Total new spending over the next year comes in at $5.4 billion, of $338.5 billion in overall planned spending.

As previewed in the week leading up to Budget 2018-2019, the Federal Government is making a sizable investment in science and research funding to the tune of $3.2 billion over five years. This is considerably more funding than what the Naylor Report recommended, $1.3 billion over four when released last year. An additional $1.3 billion is also being earmarked over five years to hit a United Nations set target of 17% of land and inland water protected by 2020.

Other headline items include proposed legislation and funding to close the wage gap in the Federal sector, continued support towards reconciliation with First Nations, $1 Billion dollars to fund the cancellation and replacement of the controversy plagued Phoenix Pay System and funding for a framework paving the way towards a National Pharmacare program.

Energy and Climate Change

The Budget announces once again $1.4 billion of the Low Carbon Economy Fund for the provinces that are signatories to the Pan Canadian Framework on Clean Growth and Climate Change, which as of last week only Saskatchewan has refrained from doing so with former Saskatchewan Premier Brad Wall stating he’d sue the Federal Government rather than implement a price on carbon.

Budget 2018 announces $109 Million dollars over five years for the enforcement of the carbon pricing regime, to be allocated between the CRA and Environment and Climate Change Canada.

Details remain elusive regarding the Low Carbon Economy Challenge, the second portion of this funding which totals $600 million and will be accessible to  provincial, municipal and provincial entities for bidding when released.

Budget 2018 puts forward $40 million to finish the modernization of Canada’s weather forecast and severe weather warning systems as well as directly fund emergency management operations that respond to extreme weather events.

But the biggest new investment made on the environment in Budget 2018 is $1.3 billion for nature and wildlife protection including a $500 million investment in the Nature Fund in partnership with corporate, not-for-profit, provincial, territorial and other partners. In collaboration with partners, the Nature Fund will make it possible to secure private land, support provincial and territorial species protection efforts, and help build Indigenous capacity to conserve land and species. The remaining funding will:

●      Increase the federal capacity to protect species at risk and put in place new recovery initiatives for priority species, areas and threats to the environment.
●      Expand national wildlife areas and migratory bird sanctuaries.
●      Increase the federal capacity to manage protected areas, including national parks.
●      Continue implementation of the Species at Risk Act by supporting assessment, listing, recovery planning and action planning activities

Offsetting NAFTA

In Budget 2018, the government reiterated its plans to focus on strengthening and diversifying free trade. The budget highlights the government’s efforts with the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) and Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), as well as its continued efforts to renegotiate the North American Free Trade Agreement (NAFTA) as the seventh round of negotiations kicked off this week. Considering U.S. President Donald Trump’s not so friendly trade agenda, new money and initiatives for trade in the budget primarily focus on mitigating trade practices south of the border:

● $191-million over five years to help Canada’s softwood lumber industry cope with recently imposed U.S. duties. The money will be used to defray the cost of NAFTA and WTO legal challenges.
● A commitment to making enhancements to Canada’s export programs, specifically for the Asia Pacific region.
● Stronger bilateral relations with China as Canada and China have a shared goal of doubling bilateral trade by 2025. The Government proposes to provide up to $75 million over five years to Global Affairs Canada to establish a stronger Canadian diplomatic and trade support presence in China and Asia.
● Continued exploratory talks on trade with the Pacific Alliance (Chile, Colombia, Mexico and Peru), MERCOSUR (Argentina, Brazil, Paraguay and Uruguay) and the Association of Southeast Asian Nations (ASEAN).

The budget also mentions creating an independent Canadian Ombudsperson for Responsible Enterprise, tasked with ensuring that Canadian firms operating abroad “exercise leadership in ethical, social and environmental practices.” There is funding of $6.8 million over six years, starting in 2017–18, with $1.3 million per year thereafter for this initiative 

Bridging the Gap on Pay Equity

Upon coming to office in late 2015, the Liberals time and again affirmed a commitment to gender equality throughout the Federal Government, beginning with the selection of Cabinet. Throughout 2016 and 2017, the Trudeau Government championed the use of Gender Based Analysis also known as GBA+ as a crucial governing tool and applying it across all departments. In Budget 2018, the Trudeau Government once again is taking measures to further its goals on gender-equity by making Status of Women Canada a full Federal Department (as opposed to a ministry of state), and proposes funding and legislation to close the pay-equity gap in the federal government as well as federally regulated sectors. To address the complexity of the federal sectors, this legislation would:

 ● Apply to federal employers with 10 or more employees, with pay equity requirements built as much as possible into existing federal compliance regimes.
● Establish a streamlined pay equity process for employers with fewer than 100 employees.
● Set out specific timelines for implementation, and compulsory maintenance reviews.
● Include job types such as seasonal, temporary, part-time and full time positions.
● Provide independent oversight.
● Ensure that both wages and other benefits are evaluated in a gender neutral way.
● Apply to the Federal Contractors Program on contracts equal to or greater than $1 million, and ensure a robust application of federal employment equity law.
● Repeal previous legislation such as the Public Sector Equitable Compensation Act, which the current Government believes to be inconsistent with the goal of pay equity.

The Government in the budget text announces its plan to consult with employers, unions and other stakeholders in the coming months with the goal of ensuring that the new regime will be applied fairly and will achieve its intended purpose.

The pay equity legislation is scheduled to be tabled this fall. While the Government believes proactive pay equity legislation is an important tool to close the gender wage gap, it is also stresses the need in the document needs to be part of a broader array of policy tools such as investments in early learning and child care, enhanced training and learning financing, enhanced parental leave flexibility, pay transparency and the continued appointment of talented women into leadership positions.

 New Parental Leave Measures

Budget 2017 announces a plan for greater flexibility for families by allowing parents to choose to receive up to 61 weeks of EI parental benefits over an extended period of 18 months at a lower benefit rate of 33% of average weekly earnings. Previously, 35 weeks of EI parental benefits were available at the standard benefit rate of 55 per cent to be paid over a period of 12 months. To support greater gender equality in the home and in the workplace, the Government proposes to provide $1.2 billion over five years, starting in 2018–19, and $344.7 million per year thereafter, to introduce a new EI Parental Sharing Benefit.

The Benefit will provide additional weeks of “use it or lose it” EI parental benefits, when both parents agree to share parental leave, which is expected to be available starting June 2019. According to Budget 2018, this initiative  builds on best practices in Quebec and other jurisdictions. In 2016, for example, 80 per cent of new fathers in Quebec claimed parental benefits, in part because of leave that was specifically reserved for them. In the rest of Canada, which does not provide second parent leave, this same figure is only 12 per cent.

Innovating Science, Research and Innovation

In Budget 2018, the Trudeau government commits $4 billion more (in total) over the next five years to support science. Below is a breakdown:

● The government will provide $2.8 billion for new federal research centres
● More than $1.7 billion over five years for Canada’s granting councils and research institutes, which includes $1.3 billion over five years for investments in laboratories, equipment and infrastructure
● $925 million over five years (starting in 2018–19), and $235 million per year ongoing:
● $354.7 million over five years ($90.1 million per year ongoing) to the Natural Sciences and Engineering Research Council (NSERC)
● $354.7 million over five years ($90.1 million per year ongoing) to the Canadian Institutes of Health Research (CIHR)
● $215.5 million over five years ($54.8 million per year ongoing) to the Social Sciences and Humanities Research Council (SSHRC)
● The government is also creating a new tri-council fund to support research that is “international, interdisciplinary, fast-breaking and higher-risk”:
● $275 million over five years (starting in 2018–19), and $65 million per year ongoing, which will be administered by SSHRC on behalf of the granting councils.
● A new investment of $210 million over five years (starting in 2018–19), with $50 million per year ongoing, for the Canada Research Chairs Program
● $231.3 million over five years (starting in 2018–19), with $58.8 million per year ongoing, to the Research Support Fund, which provides universities with resources to cover the indirect costs of research.
● $763 million over five years (starting in 2018–19) to the Canada Foundation for Innovation, which aims to provide access to state-of-the-art tools and facilities for researchers
● Includes $160 million for increased support to Canada’s nationally important research facilities through the Foundation's Major Science Initiatives Fund.
● The Government also proposes to establish permanent funding at an ongoing level of $462 million per year by 2023–24 for research tools and infrastructure supported through the Canada Foundation for Innovation.

Some new initiatives came out of yesterday’s budget for science. Including a commitment of $572.5 million over five years (with $52 million per year ongoing) to implement a Digital Research Infrastructure Strategy. The goal is to deliver more open and equitable access to advanced computing and big data resources to researchers across Canada. The Minister of Science will be working with interested stakeholders as well as provinces, territories and universities, to develop the Digital Research Infrastructure Strategy.

Budget 2018 proposed $540 million over five years for the National Research Council. The government is “re-imagining” the National Research Council by consolidating the  programming within each granting council in the following way:

● The Natural Sciences and Engineering Research Council will consolidate: Engage Grants, Industrial Research Chairs, Connect Grants, Strategic Partnership Grants for Networks and Projects, and Experience Awards Grants into a single Collaborative Research and Development Grant program.

● The Canadian Institutes of Health Research will consolidate: eHealth Innovations Partnership Program and Proof of Principle Program into a single Industry Partnered Collaborative Research program.

The government is also slashing the number of business innovation programs, but increasing overall funding to a new consolidated program. The Government will streamline the program suite in part by designating four flagship "platforms":

  1. Industrial Research Assistance Program: $700 million over 5 years and $150 million per year ongoing
  2. Strategic Innovation Fund: will move away from supporting smaller projects to support larger projects (of over $10 million) that can lead to significant job creation
  3. Canadian Trade Commissioner Service:  $10 million over five years, with $2 million per year thereafter, to renew the Canadian Technology Accelerators program
  4. Regional development agencies: $511 million over five years to support the Innovation and Skills Plan across all regions of Canada. $105 million of this will support nationally coordinated, regionally tailored support for women entrepreneurs as part of the new Women Entrepreneurship Strategy.

The government is also committing $85.3 million to the new intellectual property strategy from Budget 2017. No sign of a national data strategy in Budget 2018. Advocates have called for a national data strategy to give Canadians more control over the data created by citizens and domestic institutions, and to ensure that homegrown firms can create economic value by accessing that information.

Procurement is getting a digital overhaul, with $197 million over five years, front-loaded, to replace what the budget calls a “heavily paper-based” system that has “limited self-serve options” with an online platform. On this front, Shared Services Canada is one of the biggest recipients of new money in the budget, receiving $2.2 billion over the next six fiscal years to “improve” those services, and an additional $110 million to accelerate the shift to new data centres.

The Federal Government is also continuing its attempt to tackle rural broadband access by putting $100 million over five years for a new stream within the Strategic Innovation Fund that will focus on the development of LEO Satellites. LEO’s are situated closer to the surface of the Earth than traditional high orbit satellites, and have been shown to receive and transmit data with significantly improved response times, speeding up data services. The Government is hopeful have the ability to provide Internet across challenging landscapes at much lower costs than fibre-optic technology.

 Public Safety and Cybersecurity

● The federal government is establishing the Initiative to Take Action Against Guns and Gangs—a purported multi-pronged approach to tackle gun and gang activity in Canada. Specifically, the Government proposes to provide $327.6 million over five years, starting in 2018–19, and $100 million per year ongoing, to Public Safety Canada, the Royal Canadian Mounted Police and the Canada Border Services Agency.

● Whether prompted by accusations of hacking in the 2016 American Presidential election by foreign entities, the Federal Government  is making heavy investment in cyber-security with Budget 2018, The Government proposes significant investments of $507.7 million over five years, and $108.8 million per year thereafter, to fund a new National Cyber Security Strategy.

● Additionally $155.2 million over five years, and $44.5 million per year ongoing, is given to Communications Security Establishment to create a new Canadian Centre for Cyber Security. 

 Health Care Spending

Budget 2018 reiterates the $38.6 billion to the provinces and territories under the Canada Health Transfer. New initiatives and money for health are the following:

● Response to the opioid crisis: $231 million over five years with $150 million of that immediately available for emergency funding to the provinces and territories.
● Creation of an Advisory Council on the Implementation of National Pharmacare: The Advisory Council will report to the federal Minister of Health and the Minister of Finance and will conduct an economic and social assessment of domestic and international models, and will recommend options on how to move forward.
● More support for dementia and autism: $20 million over five years to the Public Health Agency of Canada (PHAC) to support community-based projects that address dementia and $20 million over five years to PAHC for two new initiatives for those experiencing autism spectrum disorder.
● Medical expenses tax credit: expanded to include costs related to service animals that help people with severe mental impairments.
● Increasing taxes on tobacco: proposing to advance the inflationary adjustments for tobacco excise duty so that they occur on an annual basis rather than every five years, as well as increasing the excise duty by an additional $1 per carton of 200 cigarettes, along with corresponding increases to the excise duty rates on other tobacco products. The government is also building on existing funding for the Federal Tobacco Control Strategy with $80.5 million over five years.
● Public education ahead of cannabis legalization: As promised in conjunction with Bill C-45 and C-46 legalizing cannabis use in Canada, $62.5 million over five years, starting in 2018-2019, for a public education campaign around the effects of cannabis use.

Reworking Canada’s Relationship with Indigenous Peoples

The federal budget provides new dollars for First Nations, which is intended to move beyond the Indian Act, while continuing investments aimed at closing spending gaps in areas that are long seen as irritants in the relationship between Canada and Indigenous peoples. In chapter titled 'Reconciliation', the 2018 budget earmarks new funding for Indigenous child welfare, health care, water and housing, as well as new funding arrangements and cash for self-government and modern-day treaty negotiations. Highlights include:
● $5 billion in new spending for First Nation, Métis and Inuit peoples and communities. The additional funds will push proposed spending for First Nation child welfare services to about $1.1 billion a year over the next five years.
● $101.5 million over the next five years for First Nations to create their own governance structures outside of Indian Act. Trudeau announced on Feb. 14 the government would introduce legislation to recognize Indigenous rights which currently remain undefined in federal law.
● $51.4 million for ongoing self-government negotiations. This is not surprising because the Trudeau government has invested substantial political capital in its stated commitment to reworking Canada's relationship with Indigenous peoples.
● $5 million in 2018–19 to support the Gord Downie & Chanie Wenjack Fund.
● $248.6 million over three years for services, including mental health and emotional supports to survivors and their families for the duration of the Indian Residential School Settlement.
These latest figures bring Ottawa's total spending on Indigenous files in the last three budgets to about $16.5 billion spread out over seven years.

Interestingly, the budget is silent on one of the biggest changes in the government's handling of the Indigenous file as the budget offers no dollar figure for the cost of dismantling the federal Indigenous Affairs department and replacing it with two new departments: Indigenous Services and Crown-Indigenous Relations.

Tax Changes

Budget 2018 provides the final update on the changes to passive income and tax regimes introduced last summer by Minister Morneau, and debated intensely during the Fall Parliamentary session. The Government in the 6 months since consultations closed has retooled previous measures to introduce the following planned changes:

● Introduce an additional eligibility mechanism for the small business deduction, based on the corporation’s passive investment income.
● Under the proposal, if a corporation and its associated corporations earn more than $50,000 of passive investment income in a given year, the amount of income eligible for the small business tax rate would be gradually reduced.
● For the limited number of corporations earning that level of passive income, their corporation’s active business income would potentially be taxed at the general corporate income tax rate.
● It is proposed that the small business deduction limit be reduced by $5 for every $1 of investment income above the $50,000 threshold, such that the business limit would be reduced to zero at $150,000 of investment income.
● The second measure will limit tax advantages that larger CCPCs can obtain by accessing refundable taxes on the distribution of certain dividends. Budget 2018 proposes that CCPCs no longer be able to obtain refunds of taxes paid on investment income while distributing dividends from income taxed at the general corporate rate. Refunds will continue to be available when investment income is paid out.
● In total, Budget 2018’s proposals on passive investments are targeted—the Government states that less than 3 per cent of CCPCs will be affected, approximately 50,000 private corporations. Overall, more than 90 per cent of the tax revenues from the two measures would be generated from corporations whose owners’ household income is in the top 1 per cent of the income distribution.

The two measures will apply to taxation years that begin after 2018. In total, inclusive of the Government’s changes to income sprinkling rules, the Government expects to raise from these measures $925 million per year by 2022–23.


Budget 2018 serves as a roadmap to where the Trudeau Government sees the path to re-election in 2019, as well as the first full scale response to trade issues with the United States since NAFTA renegotiation began last August.

Official Opposition Leader Andrew Scheer in his first budget rebuttal since winning the Conservative leadership last May panned the economic document stating “Never has a prime minister spent so much to achieve so little. Despite last year's economic good fortune, Justin Trudeau has failed once again to deliver the results that matter to Canadians”. NDP leader Jagmeet Singh responding in the Commons Foyer attacked the Liberals for hollow promises on pharmacare stating “What the government is proposing is not a plan. This is a fantasy. We don't see even a single dollar of investment in a plan to implement pharmacare. Singh then seemed to make light of some of the political commentary noting the Pharmacare strategy as a Liberal move to outflank the NDP on the left stating,  "I would love to see this government implement pharmacare. I would love to see the government take our plan. Please, take our idea”.

With the Low Carbon Economy, Clean Energy Fund, Veteran Pensions for Life, Canada Infrastructure Bank and Supercluster Initiatives announced in budgets passed and most of the money now allocated - Budget 2018 does less total program spending than its predecessors outside and instead focuses on a smaller number of the Trudeau Government’s cornerstone initiatives ahead of it’s go-home budget next year.

As always the Sussex Federal Government Relations team is happy to provide you with additional insight and information regarding Budget 2018 and will be closely monitoring the rollout of its announced programs in the weeks and months ahead.