Federal government looks beyond near term with climate stimulus

Finance Minister Chrystia Freeland

Justin Trudeau’s government is proposing a raft of funding for Canadian companies — including money for infrastructure and tax incentives for carbon-capture technology — aimed at emerging from the global pandemic with a stronger economy than before.

In a budget proposal released Monday, about $60 billion of $101.4 billion in new spending over three years is focused on medium-term measures to improve growth.

Much of that is geared at increasing labour force participation through measures like child care, but there are also tens of billions of dollars devoted to direct business spending, the bulk of it aimed at transitioning to a greener economy.

“The resource and manufacturing sectors that are Canada’s traditional economic pillars — energy, mining, agriculture, forestry, steel, aluminum, autos, aerospace — will be the foundation of our new, resilient and sustainable economy,” Finance Minister Chrystia Freeland said in her planned remarks to Parliament. “Canada will become more productive and competitive by supplying the green exports the world wants and needs.”

Among the highlights:

Green Measures

  • More than $7 billion over seven years to transform Canadian industry and spur innovation with a focus on zero emissions technology, green hydrogen and carbon capture and storage. That includes $5 billion in investment over seven years in a “Net Zero Accelerator” to help heavy industry decarbonize, which is in addition to $3 billion announced in December.
  • $4.4 billion over five years to allow the Canada Mortgage & Housing Corp. to provide interest-free loans to make homes more energy efficient.
  • The first federal green bond, allowing investors to finance green projects, with an issuance target of $5 billion.
  • $4.13 billion over five years to protect nature, the largest portion of which is aimed at helping the country meet its 25 per cent land and marine conservation goal by 2025.
  • Various tax incentives, including a 50 per cent cut to the general corporate and small business income tax rate for companies that manufacture zero-emissions technologies, and an investment tax credit to speed up adoption of carbon capture technology with the goal of reducing emissions by at least 15 megatonnes of CO2 annually.

Other Measures

  • $8.6 billion over five years to support jobs and growth through infrastructure investment, including $5.94 billion for a permanent public transit fund.
  • $4.18 billion to help small and midsize businesses buy and adopt new technology.
  • $2.5 billion, plus the reallocation of $1.3 billion in existing funding, to build, repair and support 35,000 existing housing units.
  • $1 billion to accelerate access to high-speed internet in rural and remote communities.

Although some of this spending will provide near-term stimulus, its main purpose is to expand the country’s growth potential, a senior government official said, which is why many of the projects aren’t shovel-ready.

Locking in robust medium-term economic growth is core to the government’s plan to spend its way out of the pandemic, while gradually reducing the debt-to-GDP ratio.

The green measures will help Canada achieve its goal of cutting greenhouse gas emissions 36% from 2005 levels by 2030 and reaching net-zero emissions by 2050, the government said.

© 2021 Bloomberg L.P.

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