ELGE: Economic Literacy for a Green Economy

Analysis of Canadian Federal Budget 2022

By Eric Miller on April 7, 2022

Budget 2022 was released on April 7 as “A Plan to Grow Our Economy and Make Life More Affordable”.

What’s missing compared to last year?

Compared to last year’s Budget document of 724 pages, this one is 304 pages including annexes.

Surprisingly, the PDF of Budget 2022 has no reporting on gender and diversity impacts (GBA+ analysis) whereas last year’s budget devoted 168 pages to this.  The website version of the table of contents includes a link to a “Statement and impacts report on gender, diversity, and quality of life” but that page displays “The web version of this page is coming soon” with a link to a non-existing PDF (“Failed – No file”).  The statement is not identified as an number annex to the budget, so it was clearly not ready in time or not meant to be examined by budget analysts and pundits.

Last year, key budget measures were (coarsely) assessed on the basis of “quality of life impacts” and a set of “expected benefits”, with scores on a 5-point scale of gender (from “men” to “women”) and income distribution (from “low” to “high income”) and a three-point “inter-generational” scale of “youth” to “senior”.  The quality of analysis seemed questionable but at least it revealed a noble intent.  Last year’s budget identified the annex as meeting the requirement of Canadian Gender Budgeting Act, 2018, which is to “report on the impacts in terms of gender and diversity of all new budget measures described in the plan”.  I learned this year in reading the Act that the government has 30 days once the budget is tabled to report on this, so I guess it’s not breaking the law by providing a broken link to a document that possibly doesn’t yet exist.

Is GDP all that really matters?

Last year’s budget included a very timid nod to “measuring what matters” beyond GDP. This excited many progressives, but evidently the government’s enthusiasm was short-lived.  This year, there’s no re-profiling of anything to do with improving quality of life measures, and no mention of having Statistics Canada follow through with progress on last year’s announcement of $300 million over five years, plus $42 million ongoing, to collect “better, disaggregated data that will enable the government, researchers, and others to better understand the experiences of people in Canada and environmental changes”.

Budget 2022 gushes about the growth of everything, framing growth as an end in itself, rather than as a means to some other end.  The Minister notes in the Foreword: “From the first day we started working on this Budget, this growth agenda was always going to be our focus.”

Canada is one of 120 countries that have committed to reduce annual greenhouse gas emissions to the point that they would be “net zero” by 2050.  This is an incredibly ambitious/challenging goal even in the absence of any growth of consumption and consumers.  And will be even more difficult with budget-fuelled growth in the number of “standalone houses, individual condos, and other types of homes alike” (doubling the number over the next ten years), growing the workforce and population (including through a proposed record of 451,000 new permanent residents which is about double the average of the last ten years), growing the supply chains of critical minerals, growing small businesses, growing the capital stock, and helping “small Canadian companies to get bigger”.

In a rare admission that growth has environmental consequences, the budget’s Ocean Protection Plan is needed because “marine traffic continues to increase in support of Canada’s growing economy”.  If the budget were honest, it would admit that emissions will increase from a growing economy.  The budget doesn’t identify any forecasted trends in emissions resulting from its myriad of initiatives that aim to increase GDP.  Each addition to GDP requires that the baseline $2+ trillion of production must reduce its emissions even more.  Fear not, the “existential challenge” of climate change identified in the budget will addressed by… the “Canada Growth Fund”!

Some additional highlights:

RE capturing carbon: Budget 2022 includes an investment tax credit for “Carbon capture, utilization, and Storage” (CCUS) that will lower “the carbon footprints of Canada’s traditional energy producers”.  The wording of “traditional energy producers” is highly questionable considering that it could apply to emissions from unconventional fossil fuels.  They write that “eligible uses” of the CO2 would include “in concrete” and in “geological storage”.  I find it curious that their acronym includes “utilization” – does this mean that captured carbon can be recycled by being re-used on a pathway to being reduced?

RE fossil fuel subsidies: The government writes that it is “committed to phase out or rationalize inefficient fossil fuel subsidies”.  Let’s unpack this for a minute: what distinguishes an inefficient subsidy from an efficient one, for fossil fuels whose combustion generates negative externalities?  The social cost of carbon is already higher than the government’s timid backstop price on carbon.  And what does “rationalize” mean for something that is inefficient?  A more honest sentence in the budget would have been to “phase out some portion of fossil fuel subsidies” and without a sense of proportionality.

RE growing nuclear: Budget 2022 commits to increasing nuclear subsidies.  A goal of a “net-zero electricity system by 2035” includes $250 million to support “inter-provincial electricity transmission projects and small modular reactors” and $69.9 million for research to “minimize waste generated from these reactors” and to “support the creation of a fuel supply chain” with $50.7 million and “$0.5 million ongoing” for the Canadian Nuclear Safety Commission to “build the capacity to regulate small modular reactors”.  More significantly the budget announced that they will broaden the role of the Canada Infrastructure Bank so that its $10 billion Growth Plan can include buying small modular reactors.

RE protected areas: The budget re-affirmed a commitment to “protecting 25 per cent of our land, oceans, and freshwater by 2025, while working towards protecting 30 per cent by 2030”.  Questions remain about how the parcels of land and water will be chosen: will they be the leftovers, or will they be scarce landscapes that will be protected despite their commercial potential for fuels or critical minerals or infrastructure?  No idea. In a related measure, the budget proposes to establish an “Old Growth Nature Fund” that will somehow do something for “British Columbia’s iconic old growth forests” as long as the BC government also spends money to somehow do something for old growth forests.

RE “climate disclosures” of financial institutions: The budget notes that the regulatory agency OSFI will consult with institutions on “using a phased approach” starting in 2024 to report on “climate-related financial risks” which will mean an expectation that financial institutions would “collect and assess information on climate risks and emissions from their clients”.  They also note that federally-regulated pension plans would be required to disclose environmental, social, and governance (ESG) considerations.  This could be interesting but raises questions about reporting frameworks.

RE “zero emission” electric vehicles: Budget 2022 proposes $1.7 billion to broaden the vehicles that are eligible for subsidies, including “more vans, trucks, and SUVs”.  Even though electric vehicles might have zero tailpipe emissions, there are still emissions from generating the electricity to charge their batteries.  And the potential for rebound effects of more driving (and congestion) from electric vehicles.  By 2035 the government hopes that electricity will be “net zero” which doesn’t mean it will be exactly 0, but any carbon from generating electricity will have to be captured.  And there’s a conflicting reality in Ontario: the Independent Electricity System Operator is forecasting an increase in carbon emissions over the coming decades, undoing the progress made over the last decade.

RE tree planting: For those of you keeping track, Budget 2022 revealed that Canada has planted 30 million of the government’s prior commitment of 2 billion trees by 2031.  I’m not sure where these trees are, and what was on the land before the trees were planted.  And I can’t envision how the government will plant another 219 million trees per year in each of the next 9 years.

Most eye-opening statistic: “28 per cent of filers with gross income above $400,000 pay an average federal PIT [Personal Income Tax] rate of 15 per cent or less”.  That’s astounding, considering that a federal marginal rate of 15% applied last year to incomes of under $48,535.

Budgets signal what the government finds important and how it wants to communicate importance.  Words and expressions are carefully chosen, as a tip of the hat to people and interest groups who can easily search PDF documents without having to flip through all its pages.  Even though I flipped through the pages, I also searched for words that I found hard to find and I also searched for curious ones that I ran into.  Here’s what everyone will find: 31 instances of “invasion”, 8 instances of “menstrual”, 8 of “lunar gateway”, 0 of “sustainable development”, and 334 instances of “grow…”.