Question Period Note: Economic Recovery

What measures is the government proposing to help Canadians businesses and ensure Canada’s economic recovery?

• Canada, like other countries, is facing record high inflation, ongoing supply chain challenges and labour shortages.
• In these changing times, the Government of Canada is monitoring the economy and its recovery closely to position Canada for success.
• The government will continue to support businesses, invest in green and digital transformations, and develop fuel innovations to achieve a resilient, inclusive and low-carbon economy.

• Through these actions, the government provides the foundation for boosting Canada’s long-term growth and creating well-paying jobs – the best way to make life affordable for years to come.

While the recovery remains entrenched, there is evidence that the pace of recovery has slowed down. Sectors representing about 75% of GDP have recovered their pre-pandemic level, but since April 2022, average monthly GDP growth (0.2%) has been lower than from July 2021 to March 2022 (0.5%). Overall, the labour market has been resilient; the employment rate is close to record low and after being muted over the last summer, employment gains resumed in the last quarter of 2022. However, inflation remains elevated at 6.3% in December 2022, which prompted the Bank of Canada to raise the policy interest rate by 425 basis points since early 2022.
Global uncertainty related to the war in Ukraine and tightening of financial conditions continue to weigh on global GDP forecast. A slow down is expected in 2023 before recovering in 2024. Canada is forecast to post the second highest growth in the G7 in 2023 and 2024 (1.0% and 1.3%, respectively, OECD forecast), which would position Canada to fare better than peer countries due to its limited trade flow with Ukraine and Russia and large domestic energy capacity. However, the Canadian economy continues to face challenges.
The labour market remains tight: job vacancies remain high (about 400,000 above late 2019 level) and employment is shifting towards jobs requiring more skills and education, with wage growth increasing in many sectors. Cost of other inputs, including, for instance, energy, increased significantly over the pandemic and remain elevated. Higher interest rates could weigh on more financially vulnerable sectors (e.g., construction and manufacturing and some services sectors such as tourism). Higher rates will also slow business investment at a critical moment when Canadian businesses need to double down in some critical areas such as green transition and digital transformation, limiting potential growth prospects. Canadian businesses remain concerned and affected by supply chains issues even though there has been some positive developments (e.g., lower shipping cost).

Budget 2022 outlined a fiscal plan consisting of both budgetary balance and reducing the debt as a percentage to GDP in the coming years. Canada continues to have the lowest net debt-to-GDP ratio among Group of Seven (G7) nations. Budget 2022 included, for example, key sector support initiatives:
• Up to $3.8 billion in support over eight years to implement Canada’s first Critical Minerals Strategy, including contributing to the development of a domestic zero-emission vehicle value chain, including batteries, permanent magnets, and other electric vehicle components;
• $1 billion to create an operationally independent federal Innovation and Investment Agency; and
• A commitment to establish the Canada Growth Fund, which would aimto attract substantial private sector investment to help meet national economic policy goals.

Budget 2022 also supported small and medium-sized enterprises’ (SMEs) growth and innovation:

Cutting Taxes for Canada’s Growing Small Businesses
Budget 2022 gradually phases out access to the small business tax rate, with access to be fully phased out when taxable capital reaches $50 million, rather than at $15 million. This will allow more medium-sized businesses to benefit from the reduced rate, increase the amount of income that can be eligible for the reduced rate, and deliver an estimated $660 million in tax savings over 2022-23 to 2026-27.

Returning Fuel Charge Proceeds to Small and Medium-Sized Enterprises
Budget 2022 provided up to $30 million over two years, starting in 2022-23, to Environment and Climate Change Canada to administer direct payments to support emission-intensive, trade-exposed small and medium-sized enterprises in those jurisdictions.

Strengthening Canada’s Trade Remedy
Budget 2022 provided $4.7 million over five years, starting in 2022-23, and $1.1 million ongoing, to the Canada Border Services Agency to create a Trade Remedy Counselling Unit that will assist companies, with a focus on small and medium-sized enterprises.

Building More Resilient and Efficient Supply Chains
Budget 2022 provided $603.2 million over five years to Transport Canada to help build more resilient and efficient supply chains in order to lower prices for Canadian, improve the ability of Canadian businesses to export goods, and deliver essential goods to communities.

Budget 2022 Sector-Specific Support Measures for SMEs:

Supporting Canada’s Performing Arts and Heritage Sectors
Budget 2022 provided an additional $50 million in 2022-23 to the Department of Canadian Heritage, the Canada Council for the Arts, and Telefilm Canada to compensate Canadian arts, culture, and heritage organizations for revenue losses due to public health restrictions and capacity limits.

Growing Canada’s Health-Focused Small and Medium-Sized Businesses
Budget 2022 provided $30 million over four years, starting in 2022-23, to build upon the success of the CAN Health Network, and expand it nationally to Quebec, the territories, and Indigenous communities.

Support for Canada’s Tourism Sector
Budget 2022 provided $20 million over two years, starting in 2022-23, in support of a new Indigenous Tourism Fund to help the Indigenous tourism industry recover from the pandemic, and $4.8 million over two years, starting in 2022-23, to the Indigenous Tourism Association of Canada to support its operations to help the Indigenous tourism industry rebuild and recover from the pandemic.

FES 2022 measures to support SMEs:

Lowering Credit Card Transaction Fees for Small Businesses
FES 2022 announced the government’s intention to enter into negotiations with payment card networks, financial institutions, acquirers, payment processors, and businesses to lower credit card transaction fees for small businesses in a manner that does not adversely impact other businesses and protects existing reward points for consumers. Specifically, the government is publishing draft legislative amendments to the Payment Card Networks Act to regulate credit card transaction fees for small businesses should industry not come to an agreed solution in the months to come.

Investing in Skills for a Net-Zero Economy
FES 2022 proposed to provide $60 million over three years, starting in 2023-24, to create new supplemental supports for existing federal and provincial or territorial jobs programming to help ensure Canadians have the skills to success, and that the economy has the workers it needs to thrive.

Previously Announced Measures to Support SMEs:

Reducing Regulatory Burden
Budget 2021 announced measures aimed at reducing unnecessary burden on businesses, including renewed funding for the External Advisory Committee on Regulatory Competitiveness, a third round of Targeted Regulatory Reviews and the intent to table a second Annual Regulatory Modernization Bill to remove outdated or duplicative regulatory requirements (introduced in Parliament on March 31, 2022).

Canada Digital Adoption Program (CDAP)
The government announced $4 billion for CDAP, which launched in March 2022 to help businesses move online, boost their e-commerce presence, and digitalize their businesses. CDAP consists of two streams: Stream 1, Grow Your Business Online; and Stream 2, Boost Your Business Tech.

Canada Small Business Financing Program (CSBFP)
Budget 2021 and 2022 announced enhancements to the CSBFP, increasing annual financing to small businesses by an estimated $560 million.

Women Entrepreneurship Strategy
The government invested up to $146.9 million over four years to the Women Entrepreneurship Strategy to provide affordable financing, increase data, and strengthen capacity within the entrepreneurship ecosystem.

Black Entrepreneurship Program
In September 2020, the government created the first-ever Black Entrepreneurship Program with an investment of up to $265 million, including $130 million from the Business Development Bank of Canada in the Black Entrepreneurship Loan Fund, to support Black Canadian entrepreneurs.

Small Business and Entrepreneurship Development Program (SBEDP)
The government provided up to $101.4 million over five years for the SBEDP to help simplify and streamline the government’s support programs, and to help equity deserving entrepreneurs access funding and capital, mentorship, financial planning services, and business training.

• The Government of Canada is expanding Canada’s economy by making investments to spur economic growth through innovation and transitioning to a clean economy.
• The government continues to invest in a greener recovery that fights climate change and builds a net-zero economy by supporting world-leading technologies that make the industry cleaner.
• The government is also working toward achieving inclusive economic participation, ensuring that growth is shared, and supportive of a diverse, skilled workforce prepared for jobs of the future.