Justin Trudeau and his ministers fanned out across the country last week on a post-budget tour to sell a bogus “grocery discount” and tout subsidies to create factory jobs in Canada.
But the most important choice in the federal budget this spring was the decision to subsidize provincial crown corporations.
It might look like government at the top of government, but ultimately it will be the least expensive kind of subsidy in the $80 billion industrial incentive package unveiled by Finance Minister Chrystia Freeland in her budget for March 28.
Part of this package is an effort to boost low-emission electrification – to make Canada’s power grids greener, but also to increase electricity supply to meet the projected surge in demand.
Natural Resources Minister Jonathan Wilkinson has long been obsessed with the need to do so, but the federal government’s decision to compete with all clean technology subsidies from the US Inflation Reduction Act is now a powerful lever. .
Ottawa created a clean power grant last November, but it had one weakness: the investment tax credits didn’t apply to companies that don’t pay taxes, like utilities. provincial electricity. In most provinces, it’s the entities that build new hydroelectric projects or small modular nuclear reactors or transmission lines, and that’s not going to change anytime soon. The Ministry of Finance therefore agreed to a new thing: industrial incentives for state-owned companies.
In many ways, electrification is different from the rest of subsidies. It is not a direct competition to get companies to build here in Canada rather than in the United States. In some ways it is a federal-provincial infrastructure program.
Another big difference is where the money will end up. Much of this will be a subsidy paid by the Canadian public to the Canadian public – in the sense that taxpayers will end up subsidizing the electricity bills of taxpayers who would otherwise bear the cost of expansion and renovation. network greening.
And yet, it doesn’t appear to be the kind of subsidy Mr. Trudeau and his ministers are most fond of talking about.
The PM visited a Honda plant in Alliston, Ont., last Wednesday to talk about the federal industrial strategy, promising it will create the jobs of the future. The Liberals are eagerly awaiting the official announcement of a heavily subsidized Volkswagen electric vehicle battery plant in St. Thomas, Ontario.
Factories do good political marketing, and that’s what the post-budget tour was about: that’s why ministers went to grocery stores to tout the extension of an expanded GST rebate as a “rebate on groceries”, even if it has nothing to do with groceries.
The Liberal government decided to compete for factories in a subsidy war, paying to attract multinationals to build factories in Canada. Ms. Freeland’s budget featured a pyramid chart with four layers of incentives and a number of organizations that will deliver them: Canada Growth Fund, Canada Infrastructure Bank, Strategic Innovation Fund.
This could become an expensive way to buy jobs, especially if the cost of the subsidy is high and if it does not provide high value-added activities such as research and development.
But clean electrification is different. It would be a necessary infrastructure for a clean technology industrial strategy. But it’s not so much about competing to ensure factories locate here as it is about spurring investment in a sector that is inherently domestic. And if you think there is a need to build clean energy infrastructure, the question is who will pay.
If the federal government bears some of the costs, it will reduce the impact on electricity bills, as regulators base price approvals on utility costs. Your tax bill will subsidize your electricity bill.
According to University of Regina economist Brett Dolter, who co-authored a paper on the subject with Jennifer Winter of the University of Calgary, the impact of this is likely to be that higher income earners bear more of the cost through taxes. Energy expenditure represents a larger share of the budget of a low-income household.
It may not be as easy to sell with a slogan as a check or a factory opening, but it was one of the biggest things to come from Ms. Freeland’s budget. It could well trigger a decade of national electrification, and it will be critical infrastructure.