Editor's Edition: What to expect of Budget 2022

Finance Minister Chrystia Freeland is set to unveil the federl government's spending plans in the House of Commons on April 7. The 2022 budget will be the first one since the 2021 federal election, and the first time in two years that the document is not expected to be dominated by spending plans related to the COVID-19 pandemic.

On this episode of Editor's Edition, Alicja Siekierska and the Public Policy Forum's Sean Speer discuss what to expect from Budget 2022 and why Speer predicts it will focus on what he calls the "care economy." They will also take a look at what the NDP-Liberal supply and confidence agreement will mean for the post-pandemic recovery, and whether Ontario managed to secure a better childcare deal from Ottawa.

If you have any policy-related questions, or feedback about the show, please email alicja@yahoofinance.com.

Video Transcript

ALICJA SIEKIERSKA: Welcome to "Editor's Edition." I'm Alicja Siekierska. On today's episode, the NDP and the Trudeau Liberals have teamed up to form a supply and confidence agreement that could see the Trudeau government in power through June 2025. We're going to dig into what that all means for the post-pandemic recovery. And the Trudeau government is also set to unveil its budget on April 7. We'll discuss what should be a priority now that the worst of the pandemic is behind us. And while we are reopening our economy here in Canada, China is going back into lockdown again. We'll discuss what their COVID-zero policy could mean for the rest of the world. Now, to get through all this, I am joined by Sean Speer. Sean is a fellow in residence at the Public Policy Forum. And he was also a senior economic advisor for prime minister Stephen Harper. And he's here to help us dig through the policy issues shaping the post-pandemic recovery. Sean, welcome back to the show. SEAN SPEER: Good to see you, Alicja. ALICJA SIEKIERSKA: Now, let's kick things off first by discussing the major political development that has happened in Canada over the last week. The Trudeau government reached what it is calling a supply in confidence agreement that will keep the Liberals in power until June 2025 if things go according to plan. The NDP has promised to support the Liberals on all confidence and budgetary matters. And in exchange, the Liberals will prioritize key NDP promises including dental care and pharmacare. Now, you'll recall that the Liberals have a minority government. So this does provide some stability in terms of the government's ability to pass policies without having to deal with the threat of a potential election. But, Sean, what do you think this deal means specifically when it comes to Canada's post-pandemic recovery? SEAN SPEER: Well, this is a big deal, Alicja. There's no other way to describe it. You know, there wasn't a lot of risk, I think, that the government wasn't going to be able to sustain itself, at least for the foreseeable future. Viewers will know we've just come out of an election campaign. The Conservatives are going through a leadership race. The new Democrats, by all accounts, don't have the financial resources to run another campaign in the near-term. And so this was a relatively stable minority parliament before this agreement. It seems to me what this agreement signals is a couple of things. One, that the Trudeau government's own sort of progressivism is something that's going to double down on in the aftermath of this pandemic. Even before the pandemic, I think it's fair to say it tilted towards the left than previous Liberal governments-- say, for instance, led by Jean Chretien or even Paul Martin. Now that there's this agreement, in effect, a common set of priorities between the New Democrats and the Trudeau government, I think it is a signal that this is going to be a period of sustained progressive policymaking. And depending on how viewers think about these things, that may be a good thing or a bad thing. The second thing, though, I think is fair to say is that we are going to see a post-pandemic policy agenda really focused on what you might describe as the care economy. If viewers go through the set of priorities enunciated in the agreement between the Liberals and Democrats, there was a big focus on expanding public support for health care. You mentioned dental care being near the top of the list, but there was also major commitments on moving forward with pharmacare and a major new federal investment in long-term care. So we've previously talked on the show about how the pandemic has shone a major light on Canada's health care system. And I think what's fair to say starting in the forthcoming budget, but I think over the next few years, we're going to see massive new federal investment in our health care system carried out by this, in effect, quasi-coalition government between the Liberals and the New Democrats. ALICJA SIEKIERSKA: Yes, the non-coalition coalition government. Now, I do want to dig into some of the details of especially those big spending plans on dental care and pharmacare. The dental care one has the most details so far. And it seems to be the one that's going to be pursued immediately. Here's what the government has proposed for its dental plan so far. It's for families making less than $90,000 a year. There will be no co-pays if the family makes less than $70,000. It starts in 2022 for children under 12 and will be expanded to those under 18, seniors, and people with disabilities in 2023, and then full implementation by 2025. This plan essentially has been lifted straight from the NDP election platform. I mean, how should we think about the government's choice to pursue these specific policies and the fact that they are what the NDP has been pushing for since even before this most recent election? SEAN SPEER: Well, maybe I'll say three things quick. The first is, while this is the specific NDP priority, they weren't pushing against a closed door. As I mentioned, the Trudeau government, it's fair to say, has a self-image as a progressive government. I think at times, it's been characterized as the kind of leader of progressive politics, even globally. And so it's not a major surprise that there's a synergy between the Liberals and New Democrats on this issue. The second thing I'd say is I think amongst progressives, there's been a view, particularly pronounced in recent years, that the old Medicare system, which covers hospitals and doctor services, needs to be expanded to account for those parts of the health care system which are not part of our single-payer model, including drugs, dental, and long-term care. And so this really amounts to, in a way, Alicja, modernizing modern Medicare. It was established in the 1960s at a time when hospitals and physicians amounted to the vast majority of health care spending. Today, those two items are less than 50%. I mean, it's really worth emphasizing this-- that we have a single-payer model for something that amounts to less than half of overall health care spending, and then a kind of mix of public and private model for the other 50% or more. And so these steps would amount to bringing those previously non-publicly covered services within Medicare-- in effect, bringing Medicare into the 21st century. It's just the third and last thing I'll say-- I think this is worth flagging for viewers-- it's one thing to commit to public financing for these types of services, but, ostensibly, it's going to require some type of negotiation and agreement with dentists. Because if the coverage extends to all dental costs for those eligible recipients, one could see a world where it becomes inherently inflationary-- that dentists, in effect, raise their prices because they know the government is going to backstop at the end of the day. So we know in the parts of the health care system that are currently publicly insured, there's a tough negotiation between government and service providers. I think that piece is yet to come. But it will have to be part of it, or otherwise the bill for this new coverage for dental services could be fairly significant. ALICJA SIEKIERSKA: Right. And so dental care and pharmacare are kind of the big ticket items here. And they're going to cost the government a lot of money. And we'll see how much based on how these negotiations go. And so on April 7, as I mentioned, the federal government is going to outline how it plans on paying for these pricey programs in the 2022 budget. Now, as we've discussed on the show before, this is going to be the first budget in two years where the government is going to be able to not be primarily focused on funding the fight against the COVID-19 pandemic and the economic immediacy and recovery surrounding COVID-19. And now there are many issues facing the government, with Russia's invasion of Ukraine, the question of military spending has come up. There's also, of course, the issue of inflation and, as always, how to stimulate long-term economic growth. So, Sean, what are you going to be watching for when the budget is unveiled on April 7? SEAN SPEER: It's a great question. I'm speaking to you today from the Kitchener-Waterloo area where I spoke to representatives from the university sector. And they're feeling really squeezed because of the Liberal NDP agreement focused on health care. I think there's a sense amongst other stakeholders, other groups that there's not going to be a lot of other money left over for these other different priorities, including R&D, and post-secondary education, and so on, and so forth. I think, as I said earlier, I think it's fair to say that the care economy, broadly defined, is going to be where the action is. I mean, we're having this conversation only 24 or 48 hours after a major childcare agreement between the federal government and Ontario that amounts to something like $10 million in new spending on childcare. So I think the government is doubling down on the care economy. I think they think it's both good politics, and also may be something of a legacy for Prime Minister Trudeau given the speculation that one of the things that this agreement with the New Democrats does is create the runway for a Liberal Party leadership race in advance of the next general election. And maybe this is a case where the prime minister has decided that he wants to leave his mark on an expansion of public support for the care economy broadly defined. ALICJA SIEKIERSKA: And in last year's budget was where that child care plan that you mentioned was first brought up. And there were plans for a long-term-- or for the next five years to have lots of stimulus spending. It was something like $100 billion over the next five years to kind of spur the post-pandemic economic recovery. But we are seeing strong GDP growth, labor markets recovering, full employment. Are we still in that support the pandemic recovery mode? Or do you expect this budget could potentially see a shift in kind of moving forward from all of that? SEAN SPEER: Yeah. It's such an important question. I mean, it's worth kind of separating out some of these different items. So pharmacare, long-term care, dental care-- these may or may not be good cases of public spending. But they're not stimulus measures, right? These are long-term expansion of our range of public benefits. And then separately, as you say, in the last budget, the government indicated that it would spend over $100 billion incremental in the coming years in order to help pull the economy out of the pandemic doldrums. And that was predicated on the assumption that we would need that kind of short-term spending to deal with the kind of overhang of the pandemic. I think it's fair to say at this point, the case for that kind of short-term stimulus is pretty darn weak. We have a pretty strong labor market generally positive signs on the economy more generally, and then, as you say, growing concerns about inflation. So dumping $100 billion more into the economy in the short-term, on one hand, doesn't seem all that justified-- on the other hand, could actually be harmful with respect to inflation. So I think the government has to handle two different things here. The first is justifying the case for why and how short-term stimulus may be needed in the economy. And then two, making the case for some of these longer run spending promises that it has set out in the Liberal NDP agreement. My bet is that they try to conflate the two. And you know, I think that's the wrong way to think about these questions. And we need to be clear in our own mind about the purpose of this spending, when the costs are going to be occurred, and when the benefits are going to result. And that's the right way to think about Minister Freeland's budget in the next week or so. ALICJA SIEKIERSKA: And so you think the affordability question and tackling inflation, that should be kind of kept separate from these kind of headline programs with dental care, pharmacare, and, as you say, the care economy. These are two separate issues that need to be addressed in the budget? SEAN SPEER: Exactly. I mean, again, one you can agree or disagree with those promises. But they're going to have long tails. They're going to take a long time to establish. I mean, think of creating a new pharmacare formulary, and the negotiations with pharmaceutical companies, and so on. I mean, that's a major long-term change to the way we deliver health care in Canada. It is not a short-term stimulus measure. And you know, it seems to me the case for short-term stimulus was predicated on the assumption that we were going to have a slow recovery coming out of the pandemic. And those signs just simply aren't present. And so, you know, I think a real test of the government seriousness on fiscal policy is whether it acknowledges in this budget that its $100 billion stimulus promised in the last budget is no longer justified and we see it scaled back-- maybe not to zero. There may be parts of the economy that do justify that kind of short-term stimulative action, but surely not $100 billion. And so that's something I'll definitely be looking for. ALICJA SIEKIERSKA: We're also seeing-- I wanted to bring up one specific argument that we've seen over the last several weeks. The carbon tax is set to go up in April. And there's been arguments and pushback against the government that it should hold off on doing this because of inflation and what we're seeing, specifically with gas prices at the pumps across the country and around the world. Do you think that the government should consider delaying that or folding that into the budget as a measure to address affordability? Or is that something you expect them to consider? SEAN SPEER: The short answer is no to both your questions. No, I don't think that they'll consider it. And no, I don't think they ought to do it. I mean, if we're committed to a carbon tax as one of the key means by which we're going to induce behavioral change on the part of companies and consumers, it's going to have an effect on prices. I mean, that's not an accident. That's the purpose. And so as soon as we see prices rising, either in part because of the carbon tax or other factors, the idea that we would then repeal the carbon tax or suspend the rise in the carbon tax, it seems to me fails to understand the kind of basic point of the carbon tax in the first place. If we don't have the stomach collectively to see the carbon tax increase, you know, it seems to me it brings in question the kind of potential for the carbon tax overall. I mean, think about it, Alicja-- between now and 2030, the carbon tax is to go to $170 per ton. That's going to bite. In fact, it's designed to bite. And so, no, I don't think the government should respond to these calls to suspend or delay the carbon tax. It should come into effect. And that doesn't mean that there aren't measures in place to help those particularly low income households that are struggling with some of these issues. But it seems to me that delaying the carbon tax is the wrong way to go about it. ALICJA SIEKIERSKA: OK. Well, let's keep talking about these big ticket items and the care economy. We've got lots of developments happening over the last week or so. Another one, as I mentioned, was the government's $10 a day child care plan. And after months of negotiations, as you mentioned, Ontario reached an agreement with the federal government that aims to cut fees in half for full day care by the end of the year. Ontario is the last province to reach a child care deal with the government. Take a listen to Prime Minister Justin Trudeau and Ontario Premier Doug Ford when they announced this agreement. JUSTIN TRUDEAU: I know Ontario parents have been wondering for a while when this was going to happen-- well, we worked hard to get this deal done because you deserve affordable child care like all Canadian parents. DOUG FORD: It's a great deal for Ontario parents and the right deal for Ontarians. It's a deal that provides flexibility in how we allocate federal funding. Flexibility, that was critical to making this program work in Ontario. ALICJA SIEKIERSKA: Now, Ontario is taking a unique approach compared to what some of the other provinces that have already secured deals with the federal government have taken. Ontario will be providing rebates to parents that are retroactive to April 1. And parents will start receiving those checks starting in May. Sean, notably, we do have a provincial election coming up in Ontario in June. So how should we think about the government's decision to move ahead with rebates, specifically, as a way to administer this funding for child care? SEAN SPEER: Yeah, I think they're right to connect the dots between both the deal getting completed and also the means by which the support is being distributed. Those checks will arrive in the bank accounts of eligible recipients in the midst of the provincial election campaign. Election day is June 2. So if you go back roughly 30 days, you have a sense of how perfectly calibrated this deal is to speak to the very voters that I think the Ford government will be targeting for their re-election. I think it's fair to say, though, Alicja, you mentioned at the top that I worked for Prime Minister Harper-- and there are parts of the Trudeau government's agenda that I don't see myself in-- but I'm able to step back and look at this dispassionately. If Prime Minister Trudeau does, indeed, step down and not stand for re-election as Liberal Party leader in 2025 and you look back at this government's legacy, I mean, obviously, the pandemic experience and the steps that were taken in the pandemic will be a big part of that, navigating the Trump administration is, obviously, a big part of it as well. But I think it's fair to say the two major policy changes that the government enacted that will have a long-lasting impact is, one, the carbon tax, which we just talked about. For a long time, there was a sense that the politics of carbon taxes were too difficult to see such a policy get put into place. We now have one in place. And in fact, the government has sustained two election campaigns since then. So I think it's fair to say the carbon tax or something like a carbon tax will be with us for the foreseeable future. And the second is these child care agreements. Jean Charest, who's running for the leadership of the Conservative Party candidate, has already said that if he became leader and, indeed, prime minister, he would maintain those agreements. I suspect the same goes in some way, shape, or form for the other Conservative Party leaders-- prospective Conservative Party leaders. So as I say, I think it's a big deal. You know, they had to probably compromise with Ontario because the Ontario government had these political, electoral considerations in mind. But credit where credit is due-- this is a big deal and will be a big part of Prime Minister Trudeau's legacy when he eventually steps down. ALICJA SIEKIERSKA: Yeah, we've seen historically it's very hard to provide benefits and then claw those back after everyone's already had them. Interestingly, the province of Ontario was holding out on signing this deal-- the negotiations did go on for a while. Do you think that the Ontario government accomplished what they wanted to get through this deal in holding out and pushing the government to-- basically right up until the deadline of when they could reach a deal without having to sacrifice $1 billion that was on the table? Do you think Ontario got what it needed through this negotiation? SEAN SPEER: It's a very important question, for which I'm afraid I don't know if I have a satisfactory answer. The details of the agreement are still, I think, being analyzed by policy experts. The premier in the clip that you played emphasized the flexibility that he thinks the Ontario government secured in this agreement, in effect implying that it was worth these long negotiations in order to secure some sort of compromise out of the federal government. I've read some analysis elsewhere, Alicja, that's not so sure that the design of the Ontario agreement is not so different from some of the other provinces that you can argue that this long, arduous negotiation was ultimately worth it. But either way, we have a deal. I think it's fair to say, Alicja, had a deal not been in place before the provincial election, this would have been a vulnerability for the Ford government. I think the Ontario Liberals no doubt would have argued that if they were in power, such a deal would be struck. So it removes on one hand a vulnerability for the Ford government, on the other hand, creates this political opportunity for these checks to be distributed before or in the midst of the election campaign. So it's a kind of political win-win. And I think for those who care about child care as a policy matter, it's generally seen as a policy win as well. You know, I mentioned earlier that the Trudeau government deserves credit here. Keep in mind that most Canadian provinces are presently led by conservatives. And so we now have 10 child care agreements done by a progressive liberal government at the national level and conservative governments mostly spread across the province is a sign that maybe we can do bigger things in our country than sometimes we give ourselves credit for. ALICJA SIEKIERSKA: This was the second announcement that Trudeau and Ford have done in the last couple of weeks. The other one was about electric vehicles-- there was-- in Alliston at a Honda plant. And so it's been interesting to see how many times the two leaders have been together to make these big announcements about significant policy changes, because it seems that it's happened a lot lately after a period where we didn't see that and there was, perhaps, more disagreement. But, Sean, before we wrap up the show, I do want to talk about the COVID-19 situation around the world. Over the last month or so, we've seen countries, including Canada make significant steps to lifting public health restrictions. And the exception here is China. This week, China began the most extensive lockdown the country has seen in two years. The city of Shanghai, which is home to around 25 million people, will be locked down in stages over nine days. That means public transport will be suspended and, notably, factories in the region will have to stop operations. Now, China is the lone country in the world that is still pursuing a COVID-zero strategy, which essentially uses lockdown measures and severe restrictions to try to deal with COVID-19 outbreaks. But, Sean, how do you see this impacting the rest of the world, which has seemingly moved on from these kind of extreme lockdown measures? SEAN SPEER: Well, I think it's just worth starting by recognizing that throughout this entire experience, you know, dating back to early-2020, the Chinese government has given the international community not a lot of reason to believe and trust what it's saying about the pandemic. I mean, it's worth remembering that we still have not had an independent investigation carried out by the World Health Organization to understand the origins, causes, and sort of spread of COVID-19. So I don't think anyone can watch what you just played on video and not be concerned, you know, that the Chinese government, given the lack of transparency and lack of cooperation, when you see that kind of crackdown, you can't help but think that they know something that we don't know. And that just speaks, I think, to the loss of trust and the kind of loss of benefit of the doubt that has stemmed from this experience. You know, we've talked at length on this show about the impact that the COVID-19 pandemic will have on globalization, which oftentimes is sort of shorthand for the relationship between China, and the United States, and the broader Western world. And you know, I think that the Russian invasion in Ukraine has only kind of exacerbated those feelings of division and fracturing. And yeah, as I said, when I see those videos and you hear these stories coming out of China, it makes me suspicious. ALICJA SIEKIERSKA: And this is likely going to mean further supply chain issues. I'm sure people are sick of hearing about that. But just the fact that factories are being told to shut down there, it is going to have disruptions, even as factories in regions around the rest of the world resume normal operations. They won't be able to, to an extent, if they are reliant on suppliers in China. So do you think this just further entrenches economies around the world to potentially nationalize some aspects of their economy or look elsewhere for their supply chains? SEAN SPEER: Yes. I think that trend was happening before this latest development. Go back to Joe Biden's State of the Union address, where he talked about the need for reshoring. Today, as we speak, Florida Senator Marco Rubio gave a major speech where he basically described China in a kind of Cold War framing. I think the world is changing. And that matters a great deal for Canada. The US is our largest trading partner. China is our second. And so if we're entering a period of kind of protracted technological and geopolitical rivalry and tensions between our first and second-largest trading partner, we're going to have to get our act together. We're going to need a kind of foreign policy strategy, a trade strategy, a domestic manufacturing strategy-- and there's not a lot of time or room for complacency anymore. These are big, fundamental questions. And you get the sense in recent weeks and months, Alicja, that the world is changing. You know, I hate to use the cliche, but that history has come roaring back after what, in hindsight, was a period of relative peace and prosperity in the 1990s and the first quarter or so of this century. ALICJA SIEKIERSKA: Yeah. Well, we'll see if this is one of-- that trade relationship with China and reshoring is one of the things that comes up in the budget. That will certainly be something to watch for. And we'll cover it after it does come out. But, Sean, that's all the time we have for today. Thank you so much, as always, for joining us. SEAN SPEER: Thank you, Alicja. ALICJA SIEKIERSKA: And as always, if you're looking for the latest business news, please check out the Yahoo Finance Canada website. And if you have any questions or feedback about the show, please feel free to email me. I'm at Alicja@YahooFinance.com. Thanks for tuning in. [MUSIC PLAYING]