On April 29, 2021, McCarthy Tetrault's Strategic Advisory Group hosted "Spring Outlook: The Business Impact of the Federal Budget and Recent Geopolitical Events". Paul Zed (former Member of Parliament and Chair of several parliamentary committees, Counsel and Strategic Advisor, McCarthy Tétrault) moderated a panel discussion on the 2021 Federal Government Budget ("Budget 2021") and other recent geopolitical events. Our panelists included:
- The Honourable Jean Charest, former Deputy Prime Minister of Canada, former Premier of Quebec and Partner, McCarthy Tétrault;
- Martha Harrison, Partner, International Trade and Investment Law; and
- Kim Brown, Partner and Vancouver Practice Lead, Tax.
A recording of the webinar is available to view online.
The following are key takeaways from the panel discussion.
1. Climate Action and a Green Economy
We are living in unprecedented times. Budget 2021 indicates that the federal government is willing to spend whatever it takes to get Canada through the COVID-19 pandemic. Analysis of Budget 2021 also demonstrates how seriously the Canadian Government takes climate change. Climate change initiatives are a central part of the stimulus package.
Prime Minister Justin Trudeau has also recently stated that by 2030 Canada will reduce emissions by 40 to 45 percent below 2005 levels. This is a substantially more ambitious target compared to Canada's original commitment to reduce emissions by 30 percent below 2005 levels. Reaching this target by 2030 is going to require a major effort from governments around the world in coming years. Highlights of green economic policies in Budget 2021 include $5 billion over the next seven years to support industrial transformation by helping carbon intensive sectors like oil and gas, cement and steel producers reduce their emissions and a $4.4 billion plan to retrofit residential buildings to make them more energy efficient. Further, Budget 2021 proposes to allow businesses that are in the clean energy space to take advantage of accelerated tax depreciation for certain types of equipment.
On March 25th, 2021, the Supreme Court of Canada (the "SCC") held the Greenhouse Gas Pollution Price Act (the "GGPPA") as constitutional. Ontario, Alberta and Saskatchewan had challenged the GGPPA on the grounds that it was a disguised tax measure that encroached on their provincial jurisdictions. The SCC decision affirms the federal government's authority to regulate greenhouse gas emissions through a greenhouse gas pricing system. For businesses, this decision provides regulatory certainty for companies that are seeking to formalize their emission-reducing targets, as well as financial projections.
2. Child Care
Perhaps the most publicized aspect of the Budget 2021 is the approximately $30 billion commitment over the next five years to build a Canada-wide early learning and child care system. This is a much welcomed development for the economy, for women and for Canadian families. COVID-19 has hit everyone hard but the impacts have not been spread evenly. Women have been disproportionately been forced to take on additional unpaid domestic responsibilities and are more likely to work in industries where jobs were lost. This has resulted in tens of thousands of Canadian women leaving the labour force entirely.
A national universally accessible child care program will help to reverse these trends. The experience in Quebec, which already has a universal child care system, shows us the positive impacts this program will have. Universal childcare will allow more Canadian women to enter the workforce and allow women to remain in the workforce as they start families. This will help drive macroeconomic growth and the increased productivity generated by the program is widely predicted to cover its cost.
It must however be noted that child care is a provincial responsibility. The federal government must reach agreements with each of the provinces which will take a significant amount of time and resources. While the announcement is a much welcomed first step, we are unlikely to see the full benefit of a national universal child care system anytime soon.
For a more detailed analysis of the tax measures outlined in Budget 2021 please see our publication "2021 Canadian Federal Budget Commentary - Tax Initiatives" written by our National Tax Group. Key measures include:
- a new earnings-stripping rule intended to address the potential
erosion of the Canadian tax base through what the Government
considers to be the inappropriate deduction of interest expense
payable by a Canadian taxpayer;
- the extension of existing COVID-19 support programs and the
addition of the new Canada Recovery Hiring Program, which is
intended to facilitate hiring back laid-off employees and hiring
new employees. Publicly listed corporations (and any employer
controlled by a publicly-listed corporation) need to be aware that
they will be required to repay Canada Emergency Wage Subsidy
amounts received for qualifying periods beginning on or after June
6, 2021, in the event that the aggregate compensation for specified
executives during the 2021 calendar year exceeds the aggregate
compensation for specified executives during the 2019 calendar
- Budget 2021 proposes to reduce the federal corporate income tax rates on certain eligible zero-emission technology manufacturers, to expand the list of eligible clean energy equipment entitled to accelerated tax depreciation, and to introduce a new tax incentive for carbon capture, utilization and storage technologies.
Canadian businesses should also keep a close eye on new tax
proposals in the United States. President Biden's
"Made in America Tax Plan" is designed to undo many
of the tax changes that resulted from the Tax Cuts and Jobs Act
passed in 2017 and to raise revenue to fund ambitious
infrastructure and other spending plans.
Canada's slow start in its vaccine rollout was due largely to the fact that it doesn't produce vaccinations domestically. Budget 2021 proposes numerous investments to combat this issue, with $500 million earmarked for capital and infrastructure at universities and research hospitals, and $1 billion set aside for the Strategic Innovation Fund to assist various life science and bio-manufacturing companies. Despite this slow start, Canada is now vaccinating a bigger share of its population per day than any other G20 country, except for the United States.
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