How does the 2018 Federal Budget add up?

How does the 2018 Federal Budget add up?

The federal government should be applauded for its efforts to promote equality in its 2018 budget, Equality and growth: A strong middle class. The federal government has opted for spending and a social focus rather than paying down Canada’s debts during these strong economic times, adding an expected $18.1 billion to the deficit. There is some risk that such a strong focus being placed on social issues may neglect certain aspects of the economy. Below the Institute examines some of the aspects of the Budget and how they add up.

The Budget focuses on expansionary fiscal policy rather than debt repayment during the economically prosperous times in preparation for downturns. Canada’s current low debt-to-GDP (gross domestic product) ratio and plans to outgrow the debt by growing the economy are used to support the Federal government’s spending position. Government investments can be a key driver of the economy and can pay back dividends throughout society, but are likely unnecessary when the economy is running hot. But it hides the risks of rising interest rates placing greater demands on outstanding debt and potentially falling GDP during a recession, both of which would work against the ratio.

The Budget also contains no specific plans regarding how to compete with US President Trump’s corporate tax cut. A race to the bottom on corporate taxation is not the answer, but specific policy levers that could be pulled in response to the tax cut were expected. Canada is at risk of losing businesses to the US and the attraction of foreign investment just became that much more difficult. The government response to this criticism is that they will unveil their response when the time is right, but there are worries that the moment has already passed.

Parental leave: Additional leave does not equal equality

The Budget introduces an additional non-transferable five weeks to the existing parental leave. The policy intent is to encourage more fathers to temporarily leave the workforce to take care of their children, which may shift society’s gendered view on childcare. In addition, the erosion of the childcare penalty on women would reduce a portion of the wage gap between the average man and women.

The current policy will likely fail to have the desired effect. Five weeks for the non-primary caregiver is not enough to meaningfully change gendered societal perceptions of childcare, nor reduce the financial impact on primary care givers, compared to the 50 weeks women are often taking (15 weeks maternity benefit + 35 weeks parental benefit). While this was a good first step, public policy should move more boldly on the division of parental leave in order to enact real change in society. Alternatively, the “use it or lose it” parental leave could have been taken out of the existing 35 weeks of parental benefits instead of tacking on new time. This would ensure that both parents more equally share in the responsibilities of childcare, the primary care giver would return to the labour force more quickly and reduce the wage penalty often associated with parental leave, and would be financially neutral to the federal government instead of unnecessarily adding $344.7 million in costs annually.

Childcare: Access does not equal affordability

Women disproportionately drop out of the labour force to raise the family’s children. The Budget contains some continued funding for provincial childcare spaces. Ontario is said to be on track for 100,000 new spaces but fails to restrict costs faced by families to impactful levels. For example, as of 2015, Montréal families paid $174 monthly for childcare for a toddler, while Toronto families paid $1,325 for equivalent childcare. The gap between men and women’s participation rate was 6.4 percent in Montréal and 12.6 percent in Toronto. Removing the cost barriers to rejoining the labour force may be a more impactful solution than adjusting the distribution of parental leave because of the timespan associated with each. On average women experience a 3 percent wage penalty for each year they are away from the workforce.

Pharmacare: Net benefits may never be realized

Budget 2018 also calls for the creation of an advisory council for the implementation of a national pharmacare plan. This is a step towards a unified drug plan that could lower costs for all medications through strengthened negotiating power. Ontario currently “spends significantly more on drugs than peer countries,” revealing the potential for significant cost savings through bulk purchases. The Parliamentary Budget Office estimates a national savings of $4.2 billion is possible through a national pharmacare policy, but involves a significant transfer of expenditure from individuals to the government. Additionally, the total expenditure by the medical system would be lowered with increased access to preventative medications that ensure treatable illnesses do not progress to the point of critical care, which involves costly hospital visits. This is particularly important for those who are unable to afford their medication so choose to go without.

While such a plan is a welcomed addition to the Canadian Medicare system, it is unlikely that $20 billion can be found to pay for it. Minister of Finance Bill Morneau has since clarified that it is unlikely to be a national plan, but instead a national pharmacare strategy to fill any gaps. Therefore the cost savings under a piecemeal system will likely evaporate and devolve into another wealth transfer from taxpayers to low or no income individuals. Making sure Canadians have access to the medications they need is a great thing, but the available cost savings should come with it.

Science and research: Basic research balanced with commercialization

Increased investment in scientific research is a positive addition to the Budget. The importance of continued effort to attracting best-in-class researchers and ensuring that funding for necessary equipment is available cannot be overstated. The government’s decision to invest in the recommendations of the Naylor Report is welcome. But the commercialization of the research being created received comparatively less focus in the Budget. Better commercialization of Canada’s research can ensure that money is funneled back into the basic research and would work to create a virtuous cycle. The brain drain the Canada experienced in some research fields could be stemmed through improved commercialization leading to greater domestic wages. While it is important to continue to fund basic research, the federal government must continue to remove the barriers to commercialization that will ensure the future prosperity of Canadians.

Reconciliation: Finally, some positives

A continued focus has been paid to reconciliation of Canada with Indigenous Peoples. Investments have been earmarked for items such as improvements to infrastructure, housing, safety, children, education, training, and water, with a focus on self-determination. The Institute has previously recommended many of these measures and is hopeful that the greater levels of self-determination will lead to meaningful progress being made towards reconciliation.

The Institute is pleased that many of its recent areas of research and recommendations have been targeted by this year’s federal Budget. It remains to be seen how the implementation of the outlined policies will impact Canadian’s broadly along with the groups of specific interest.

Written by Chris Mack

Photo credit: bakhtiar_zein, iStock

Category: Talent, Budgets, Legislation, Businesses, Employment, Financial Analysis, Social Policy, Economy