Budget focus will be skills and innovation, finance minister says
Next week’s federal budget will deliver training to help Canadians get the skills they need to find work in a rapidly changing economy, Finance Minister Bill Morneau told the Star.

thestar.com
By BRUCE CAMPION-SMITH
March 16, 2017

The upcoming federal budget will deliver a prescription to enable more Canadians to get the skills they need to find work in a rapidly changing economy, with a special focus on helping more women enter the workforce, Finance Minister Bill Morneau says.

Canada’s aging workforce and the rapid pace of technological change are two factors driving Ottawa’s decision to make skills and innovation the focus of next Wednesday’s budget, Morneau told the Star on Thursday.

“It’s a pace of change that creates challenges...but it does create opportunity as well,” he said.

“How do we prepare workers to be ready for those opportunities? That’s where we think we can have an important role,” he said in an interview from Germany as he was en route to Frankfurt to give an afternoon speech.

While governments should not be “choosing the winners and losers,” Morneau said that government can play a role in focusing on sectors where Canada has a “comparative” advantage, he said.

In his Frankfurt speech, Morneau suggested that Ottawa will help workers evolve their skills over their careers. “I will also be taking steps to create a culture of lifelong learning, helping people develop the skills they need at every stage of their life to succeed in the new economy,” the finance minister said, according to a prepared text.

On the skills front, the budget is certain to take inspiration from Morneau’s council of economic advisers, led by Dominic Barton, global managing partner of the consulting firm McKinsey & Co.

The council’s second report, released in February, detailed recommendations it said are needed to “jolt” Canada - challenged by aging population, low level of productivity and “unprecedented” technological change - onto a “higher and more inclusive growth path.”

It urged the government to do more to spur innovation, boost the pool of growth capital, invest in a so-called FutureSkills lab as a skills incubator and target key sectors such as energy, mining, health care and advanced manufacturing to unleash growth potential. The council also urged initiatives to encourage under-represented groups, such as lower-income and lower-skilled workers, and women with children under 16, to get into the workforce.

Morneau sounded in sync with all those suggestions. While recent GDP and employment numbers have been encouraging, challenges remain in the longer term, he said.

“Global growth is slower than it was in the last couple of decades. Demographic change is upon us in Canada. We need to think therefore about how we invest to make a difference; we need to think about greater workforce participation in order to deal with the challenge of demographic change,” Morneau said.

The finance minister singled out women, whose participation in the workforce has grown significantly over the decades but still lags behind men. “We’re going to be thinking about how do we make women be more successful in today’s economy. That means thinking about the supports for women,” he said.

Wednesday’s budget will build on the themes laid out in the Liberals’ first budget, which delivered a tax cut for the middle class and enhanced child benefits, all measures which are already making a difference, Morneau said.

“This budget will be very much about continuing to create confidence for middle-class Canadians,” he said.

Still, the government’s ambitions are somewhat hobbled by the deficit, caused by a slowing economy, notably in the resource sector, and Ottawa’s own spending. The fall update showed the government running a deficit of $25.1 billion in the current fiscal year, rising to $27.8 billion next year before dropping to $14.6 billion in five years.

“My view is we can focus on our investments in growth while being fiscally responsible. What you will see in our budget is a sense of responsibility,” Morneau said.

The Liberal government had set a goal of finding an extra $3 billion through a review of taxes. Last year’s budget chopped tax credits for children’s fitness and arts programs. Morneau said more changes are coming in Wednesday’s budget. “You will see some results of that review in this budget,” he said, adding that tax changes will be a “continuing area of focus.”

Economist Craig Alexander expects the budget to further the Liberals’ “inclusive growth” strategy.

“They want to implement policies that will lead to stronger economic growth but they also want to make sure that Canadians across the income spectrum are benefiting,” said Alexander, senior vice-president and chief economist at the Conference Board of Canada.

Both Prime Minister Justin Trudeau and Morneau have used speeches to speak out about economic inequality. The finance minister told his Frankfurt audience Thursday that anti-globalization, protectionism and even anti-immigration movements are fuelled by economic anxieties.

Yet Alexander said the solution is more complicated than simply taxing the rich and distributing it among the less wealthy.

“You may lean against income growth at the top end with a progressive tax system, but the more important thing to do is to help individuals at the low and middle income level to climb up the income level,” Alexander said in an interview.

“You have to look at the skills agenda as being the great enabler...It’s the most effective way of dealing with inequality,” Alexander said.

That’s especially important now at a time when the labour market can’t keep pace with the changes in technology, he said.

On the skills front, he said the federal government has a “whole spectrum” of possible policies that include skills training for adults, indigenous education, and skills development for immigrants while collaborating with provinces to improve training and education for youth.

On innovation, he expects Ottawa to underscore efforts to help businesses get access to capital funding. “I think the catchword they are going to use is ‘high impact’ firms, firms that are small and growing,” he said.

“What we really need to do is identify the companies that have the greatest growth potential and then, in a sense, double down on them,” he said.

Alexander doesn’t expect big tax changes, in part because of uncertainty around President Donald Trump’s promises to cut corporate and personal tax rates in the U.S., which could leave Canada at a competitive disadvantage.

He expects the government to defend the deficit by saying that the debt-to-GDP ratio - a measure of debt to the size of the economy - will be held steady or track downwards.

“They can’t run deficits significantly larger than what they’ve already committed to,” he said.

“This budget will likely be more subdued, certainly on the spending front,” Alexander said.