Author: Consultant

Canada’s 2022 federal budget

When will the 2022 federal budget be announced?

Finance Minister Chrystia Freeland will deliver the 2022 federal budget on April 7 at 4 p.m. ET, the government announced during question period on March 29.

This will mark the first budget announcement since the 2021 federal election.

What will the federal budget cover?

Thursday’s budget is expected to have three principal themes: measures to address climate change, housing affordability and Canada’s role in the world. The latter is a late addition that will see Ottawa boost defence spending in response to Russia’s invasion of Ukraine. It will also include money for cybersecurity to combat foreign disinformation campaigns.Canada’s changing definition of defence spendingCanada’s defence spending as a percentage of GDP, by fiscal year Without accounting change Including spending by departments outside of Defence

The 2022 federal budget will also be an opportunity for the government to outline how it intends to wind down the massive emergency spending related to the COVID-19 pandemic, while delivering on the billions in promised new spending from last year’s Liberal Party election platform and the recently announced parliamentary co-operation agreement with the NDP.

Other potential items to look for in the budget:

• Housing: The Liberal election platform promised $4-billion to build 100,000 new homes by 2025, with Ottawa giving money directly to municipalities to speed up new residential construction. It also pledged another $2.7-billion to repair and build affordable housing units. Rachelle Younglai reports that Ottawa is facing pressure to address Canada’s affordable-housing problem in Thursday’s budget.
• Climate change: Other big-ticket items include $9-billion for a range of climate programs and billions for green economy initiatives, such as clean technology and investments in manufacturing zero-emission vehicles.
• Defence: A Scotiabank report that offers a primer ahead of the federal budgetalso expects another $12-billion to top up defence spending. Steven Chase and Patrick Brethour report that Canada’s defence spending could see a boost to fulfill its NATO promises and protect Arctic sovereignty.
• Electric vehicles: The budget will also include about $2-billion on a strategy to accelerate Canada’s production and processing of critical minerals needed for the electric vehicle supply chain.

What is the projected federal budget deficit for 2022?

During the December fiscal update, Ms. Freeland projected that the size of the federal deficit would decline from $327.7-billion in 2020-21, to $144.5-billion in 2021-22 and $58.4-billion for the 2022-23 fiscal year that begins on April 1. That was, however, beforethe war in Ukraine began and the Liberal-NDP deal was announced.

The massive spending during the COVID-19 pandemic has led to a near doubling of the federal debt, which is projected to reach $1.25-trillion in 2022-23.

Ms. Freeland’s December fiscal update said the debt-to-GDP ratio would decline slightly over the next five years, reaching 44 per cent by 2026-27, despite climbing from 30.7 per cent to 47.6 per cent between 2019-20 and 2020-21.

What will Canada’s soaring inflation mean for the federal budget?

Canada’s inflation rate hit a new three-decade high in February, rising 5.7 per cent from a year earlier. That was the highest inflation rate since August 1991, and it marked the 11th consecutive month that inflation has surpassed the Bank of Canada’s target range of 1 per cent to 3 per cent.

Households are especially feeling the pinch on several fronts. Shelter costs rose 6.6 per cent, the largest annual increase since 1983. Groceries rose 7.4 per cent, the most since 2009. And gas prices jumped 6.9 per cent in a single month.Consumer Price IndexYear-over-year percentage change-101234567%198919952001200720132019Nov. 20031.58%THE GLOBE AND MAIL, SOURCE: STATSCANDATASHARE×

Russia’s invasion of Ukraine is also fuelling economic uncertainty with the soaring costs of fuel prices and rampant supply chain issues.

Economists say Ottawa will likely benefit in the short term from stronger-than-projected revenues for economic growth, inflation and the higher price of oil – due to strong corporate balance sheets and soaring commodity prices – but those gains will be largely offset by the added spending from election platform commitments and other recent promises. High inflation also helps the government’s bottom line in the short term, even though expected increases in Bank of Canada interest rates are a source of concern over the longer term.

Robert Fife, Bill Curry and Steven Chasereport that Ms. Freeland is readying another big-spending federal budget amid fears of rising inflation. Business executives say the risk of pumping more money into an already hot economy could fan inflation even further, forcing the Bank of Canada to further hike rates. “What we can’t afford is another round of new spending that is paid for with borrowed money,” said Canadian Chamber of Commerce president Perrin Beatty.

What does the Liberal-NDP deal mean for the federal budget?

In March, 2022, Prime Minister Justin Trudeau announced an agreement had been struck with the NDP to prop up the minority Liberal government until 2025 in exchange for parliamentary co-operation and progress on key NDP policies, including an income-based dental care program, pharmacare, housing and increased federal transfers to the provinces for health care.

The agreement specifically states the NDP will support four Liberal budgets as part of the deal.

On Tuesday, NDP Leader Jagmeet Singh said he received an advance briefing on the federal budget and expects to see “first steps” toward national dental care and other NDP priorities:

• The March agreement included pledges to launch a new dental care program for low-income Canadians, starting with under 12-year-olds in 2022 and full implementation by 2025.
• It also committed the government to pass a Canada Pharmacare Act by 2023 and provide the provinces with “additional ongoing investments” for health care.
• Mr. Singh said he also expects to see measures that address housing shortages and climate change, given they were also mentioned in the deal with the Liberals.

The recent agreement between the Liberals and the NDP did not include any costing estimates. Though a recent Scotiabank report estimates the Liberal-NDP pact will add another $15-billion to $20-billion over the life of the three-year agreement – and potentially $40-billion by 2027. Meanwhile, according to a report released Tuesday by Desjardins economist Randall Bartlett, the Parliamentary Budget Officer has estimated the NDP’s proposed national pharmacare plan would cost more than $11-billion a year.

What’s the feeling from business leaders?

Many CEOs and senior figures in Canadian business are looking for signs that the government is ready to use Thursday’s federal budget to act on economic policy – not just talk about it. James Bradshaw and Andrew Willis report that top executives are increasingly concerned that Canada is missing a chance to set itself up for long-term success. They worry the country is sending the wrong signals, failing to encourage businesses to spend on expansion and missing out on investments from foreign companies.

“Some of the challenges are ideology challenges,” Royal Bank of Canada chief executive Dave McKay said. “And what we’re hoping to see in the budget is a shift in ideology from tax-and-spend, which does not create sustainable growth, to an incentive to take risks, and innovate, and grow and solve problems.”

“Tax and spend to me is like eating Sugar Pops for breakfast. You feel really good for an hour and you feel crappy by noon, at the end of the day. And that’s what tax-and-spend gives you. It doesn’t give you sustainable prosperity.”

Will Chrystia Freeland continue the tradition of finance ministers buying budget day shoes?

There is an ongoing tradition that states the Minister of Finance should wear new shoes when the federal budget is delivered, a practice that dates back to the 1950s. In 1955, Walter Edward Harris was the first minister of finance to don new shoes on budget day.

Ms. Freeland, the first woman to ever present Canada’s federal budget, continued the tradition during the last budget unveiling on April 19, 2021. She wore black leather pumps from Toronto footwear label Zvelle and chose to unbox the design on her Twitter page.

At midday: TSX hits near-three week low on concerns over U.S. policy tightening (Apr 6, 2022)

Canada’s main stock index fell on Wednesday, with technology and financial shares leading declines, as investors fretted over the prospect of aggressive policy tightening by the U.S. Federal Reserve to tackle inflation.

The Toronto Stock Exchange’s S&P/TSX composite index was down 148.11 points, or 0.68%, at 21,782.72, its lowest level since March 18.

On Wall Street, the Nasdaq led declines for a second straight day, ahead of the minutes of the Fed’s March meeting that could indicate just how fast and how far policymakers would proceed in shrinking a massive balance sheet and raising interest rates.

The information technology sector was the biggest decliner among Canada’s 11 main sectors, with a 4.3% drop. Valuations and returns of growth and technology stocks are discounted deeply when rates go up.

“Its a sour mood. The equity market doesn’t like rising interest rates, too high inflation, a recession and war. So you got four big uncertainties and no one can talk about anything positive right now – that sentiment will have to play out until it ends,” said Barry Schwartz, portfolio manager at Baskin Financial Services.

“It’s just the velocity of the moves in the treasury markets and the fact that there’s still no continued resolution in Russia, the markets are now starting to price in much slower growth going forward.”

Artillery pounded key cities in Ukraine, as its president urged the West to act decisively in imposing new and tougher sanctions being readied against Russia. Separately, the Kremlin said peace talks with Kyiv were not progressing as rapidly or energetically as it would like.

The financials sector fell 0.7% with Bank of Nova Scotia and Toronto-Dominion Bank among the most heavily traded shares. The industrials sector slid 1.5%.

The Nasdaq slumped 2% on Wednesday as tech stocks extended their selloff for a second straight day on mounting concerns over aggressive actions by the Federal Reserve to fight inflation, with minutes from the central bank’s March meeting on tap.

Shares of megacap growth companies such as Microsoft , Apple and Amazon.com tumbled between 2.2% and 3.3%, dragging down the Nasdaq and the S&P 500.

High-growth stocks, whose valuations stand to be pressured by higher bond yields, bore the brunt as the benchmark 10-year yield hit a three-year high.

Fed Governor Lael Brainard said on Tuesday she expected a combination of interest rate hikes and a rapid balance sheet runoff, sparking losses on Wall Street.

“The pre-earnings rally has now been somewhat cut short due to surging yields and a very strong dollar,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

“The Fed minutes today will likely show an even more hawkish attitude by the Fed members. I think they’ll point to a half-a-percent rise next month.”

The Federal Open Market Committee’s minutes, set to be released at 2 p.m. ET (1800 GMT), could indicate how fast and how far policymakers will proceed in trimming several trillion dollars from the stash of assets purchased to stabilize financial markets through the pandemic.

While estimates of the impact vary, Fed Chair Jerome Powell after the March meeting said the reductions might have the same effect as an additional quarter-point increase in short-term rate.

Traders now see 83.1% odds of a 50 basis points rate hike at the central bank’s meeting next month.

The CBOE Volatility index, also known as Wall Street’s fear gauge, rose to 24.36 points, its highest since March 21.

U.S. stock markets had a rough start to the year as the prospects of a more hawkish Fed weighed on growth shares, while the war in Ukraine compounded worries over rising inflation.

The United States targeted Russian banks and elites with a new package of sanctions on Wednesday that includes banning any American from investing in Russia, after Washington and Kyiv accused Moscow of committing war crimes in Ukraine.

The Dow Jones Industrial Average was down 237.28 points, or 0.68%, at 34,403.90, the S&P 500 was down 54.20 points, or 1.20%, at 4,470.92, and the Nasdaq Composite was down 328.14 points, or 2.31%, at 13,876.03.

Among other stock movers, JetBlue Airways Corp slid 8.4% after the carrier said it made an unsolicited $3.6 billion bid for Spirit Airlines Inc, potentially snarling merger plans between the ultra-low-cost carrier and Frontier Group Holdings Inc.

Frontier Group and Spirit Airlines fell 10.2% and 3.0%, respectively.

CLIMATE POLICY – Carbon Pricing

At first glance, that system might appear to be on more solid ground than ever before. An increase in the federally imposed carbon price, bringing it to $50 per tonne, just took effect on Friday. Further annual increases of $15 per tonne seem assured for the next couple of years, courtesy of a Liberal-NDP agreement meant to keep the current government in power until 2025.

But that doesn’t mean it will keep rising, as currently scheduled, all the way to $170 per tonne by 2030 – not when the federal Conservatives, the likeliest alternative to the Liberals in the next election, appear to be shifting back to carbon-pricing opposition after flirting with support for it.

And that political instability is a big impediment to carbon pricing fulfilling its biggest purpose, which is to incentivize big, long-term investments in clean technology that don’t offer enough financial upside otherwise.

Speak to leaders of large Canadian industries – including, very notably, the oil and gas sector – and you will hear less opposition to carbon pricing than frustration with the uncertainty around its future. If they knew it would keep going up as planned, they say, it would drive adoption of carbon capture, electrification, and other means of reducing emissions. Without that confidence, they feel at risk of high costs if the price does keep going up, but reluctant to spend in ways that won’t pay off if the price is flattened or scrapped altogether.

So there was very good reason for Ottawa to announce in the Emissions Reduction Plan (ERP) that “to enhance long-term certainty” it will be “exploring measures that help guarantee” the carbon price. That was mostly a reference to developing a mechanism to reduce the private sector’s exposure to risks from policy changes – ensuring companies will get the benefits from investments contingent on carbon pricing reaching a certain level, even if that doesn’t actually happen.

And it was equally encouraging to get the impression from Environment Minister Steven Guilbeault, in an interview with The Globe and Mail following the ERP’s release, that the government is readier to move than the exploratory language in the plan made it sound.

“I think this is something we can do very quickly,” he said, anticipating only “a matter of months” to choose from possible methods.

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It’s sink-or-swim time for Canada’s oil and gas industries

There is some cause for skepticism about the government moving at quite that pace, given its usual slowness. But it should help in this case that a credible idea for how to achieve greater carbon pricing certainty is already in play.

Known as “contracts for differences,” and explicitly mentioned as an option in the ERP, it was first proposed in a C.D. Howe Institute paper last year by Dale Beugin of the Canadian Climate Institute and Blake Shaffer of the University of Calgary.

The arrangement would boil down to a transfer of risk from private investors to the government. A public entity, such as the Canada Infrastructure Bank, would commit in advance to paying a company investing in a clean-technology project a specific amount, based on the anticipated value attached by carbon pricing to that project’s reduction of emissions. If the carbon pricing did not go up as expected, the government, rather than the company, would be on the hook for the lost revenue; if the carbon price went up more stringently than expected, the government would be the beneficiary.

It’s important here, contextually, to understand that this would not be primarily about the version of carbon pricing paid by Canadian families and smaller businesses. It would mostly apply to the system that covers large industrial emitters, in which companies can not only generate savings for themselves by reducing their emissions, but also earn credits they can sell to other emitters.

That’s where much of the worth for big clean-tech investments is supposed to come in – but again, only if there’s enough policy certainty. And while the Conservatives have not outright opposed industrial pricing, the way they have with the levy paid by most consumers, they have been non-committal at best on increasing its stringency.

It’s also worth considering how much the lack of certainty may be costing the government at the moment. The less that industries can count on carbon pricing to make their emissions-reducing investments economical, the more they are able to make a compelling case for subsidies, such as the large carbon-capture tax credit expected in next week’s federal budget.

The contracts for differences would not be ironclad, exactly. A new government could conceivably tear them up. But it would be given pause before doing so because such an action would open it up to lawsuits and compensation costs, and perhaps more importantly, reputational damage to Canada’s broader investment climate.

The mechanism would also provide disincentive to scrap or weaken carbon pricing itself, since that would leave the government on the hook for large sums of money.

For that reason, the idea’s inclusion in the new climate plan – and Mr. Guilbeault’s talk of acting quickly – is liable to be painted by Conservatives as undemocratic, because of the way it could tie their hands in future.

That’s probably a better argument when it comes to another possibility, mentioned in the same section of the ERP, that the government will somehow try to more firmly enshrine the carbon price in law. (That prospect seems somewhat dubious anyway, since presumably future parliaments could simply roll the law back.)

But when it comes to the contracts for differences, as Mr. Shaffer noted in an interview, governments already commit to all sorts of long-term investments and financial partnerships – in infrastructure, for instance – that are costly to break for their successors.

There is no good reason, at this point, why carbon pricing should be any different.

Canadians have essentially given it a green light in the last two federal elections. Industries, including those in a fossil-fuel sector that carbon pricing’s opponents claim it threatens, insist they’re ready to embrace it. It’s time to give it a chance to do its job.

Royal Bank Of Canada To Buy Brewin Dolphin For GBP 1.6 Bln

RBC Wealth Management (Jersey) Holdings Limited, a wholly owned subsidiary of Royal Bank of Canada, announced cash offer for the entire issued and to be issued share capital of Brewin Dolphin (BRW.L) for 515 pence per share, implying an equity value of about C$2.6 billion or 1.6 billion pounds on a fully diluted basis.

The offer prices represents a premium of 62 percent to the closing price of 318.0 pence per Brewin Dolphin Share on 30 March 2022.

RBC anticipates completion of the transaction by end of third-quarter of 2022.

The Brewin Dolphin Directors intends to recommend unanimously that Scheme Shareholders vote in favour of the Scheme at the Court Meeting.