The Ontario government’s attempt at a hardball confrontation with education workers and federal finance minister Chrystia Freeland’s Fall Economic Statement have one thing in common.
They were both exercises in managing expectations.
“We cannot compensate every single Canadian for all of the costs of inflation driven by a global pandemic and Putin’s invasion of Ukraine,” Freeland said in mid-October.
A couple of weeks before tabling her Economic Statement the finance minister warned Canadians: “The coming months won’t be pretty as rising interest rates slow a once red-hot economy and force some people out of their jobs.”
“Our economy will slow. There will be people whose mortgage rates will rise. Businesses will no longer be booming. Our unemployment rate will no longer be at its record low,” Freeland added.
Freeland wants Canadians to get used to the idea that the federal government cannot shelter everyone from economic headwinds.
When the Economic Statement came it confirmed the minister’s warning. The document included a few micro-measures, but not much, and nothing for such vulnerable groups as people who rent their homes.
As for Ontario’s Doug Ford government, when it tried to draw a line in the sand in talks with education workers the purpose was to send a message to all Ontario public sector workers, to wit:
We meant what we said in 2019 in Bill 124. We will strictly and without compromise hold the line on all wage increases.
The constitutional right to strike
Bill 124 limited total average compensation, including salary increases, for all Ontario public sector workers to one per cent. It thus tied the hands of Ontario government negotiators. Bill 124 rendered bargaining on new contracts almost meaningless.
In 2019 a group of unions launched a court challenge to Bill 124. The group included the Canadian Union of Public Employees (CUPE) which represents the education workers currently in negotiation with the Ford government.
The unions argued the bill effectively denies the constitutional right to free collective bargaining.
In 2015, the Supreme Court of Canada had ruled that the rights to strike and to collective bargaining are protected by the freedom of association provision in Canada’s Charter of Rights and Freedoms.
In 2016, an Ontario judge cited that landmark decision when he deemed the Dalton McGuinty Liberal government had failed to respect workers’ constitutional rights by imposing a settlement on Ontario teachers.
The challenge to Bill 124 is now before the Ontario Superior Court. In September, Ontario’s Financial Accountability Office told the Ontario government it could be on the hook for $8 billion if it loses the case.
Mindful of its legal jeopardy, Ontario’s Doug Ford government invoked the Canadian Charter of Rights and Freedom’s notwithstanding clause late last week, when it passed legislation forcing a contract on CUPE education workers.
The legislation, Bill 28, made it illegal for CUPE workers to strike, and imposed punishing fines on both workers and their union for doing so.
The notwithstanding clause allows a government to pass laws contrary to many of the
Charter of Rights and Freedom’s provisions, but only for a period of five years.
Ford and his education minister Stephen Lecce justified this rarely-used measure by citing the need to keep Ontario kids in school after the trauma of the pandemic. They assumed the majority of Ontarians would buy that pitch and support the government, not the union and the low-paid workers it represents.
Ford and Lecce miscalculated, and badly.
The public, to Ontario Conservatives’ great surprise, backed the workers by a large margin. Even the private sector unions which had supported Ford during the last election campaign enthusiastically took the CUPE workers’ side.
And so, on Monday morning, November 7, Ford blinked. He rescinded his draconian legislation and offered to renew negotiations.
The CUPE leadership waited until it got Ford’s pledge in writing and then called off their political protest. That job action had closed schools throughout the province – and mobilized the support of virtually the entire Canadian labour movement.
Still, as he made his tactical withdrawal, Ford continued to push the line that his government has to be mindful of perilous economic times, and must manage provincial finances accordingly.
Economic Statement revives the idea of industrial strategy
The Trudeau federal government is entirely seized with a sense of pending economic doom and gloom, which undergirds the Economic Statement Chrystia Freeland unveiled on November 2.
The Statement alludes to Canada’s strengths – “a highly educated population, a way of life and society that attracts people from around the world, and abundant natural resources” – but puts greatest emphasis on the challenging economic environment.
“Given current economic conditions, continuing fiscal prudence will be important to ensure that inflation is not made worse or longer lasting,” the Statement reads.
There is promised money, down the road, for an industrial strategy based on sustainable energy, motivated, in part, by the major U.S. investment in clean technology contained in President Joe Biden’s oddly-named Inflation Reduction Act.
The Statement points out that Canada has been a laggard when it comes to investing in innovation: “Research and development intensity has steadily fallen over the last two decades, to a level roughly one third that of the U.S.”
As a response to this sorry record, and to the new challenge of the Inflation Reduction Act, the Statement announces a Canada Growth Fund “which will help to attract billions of dollars in new private capital to create good-paying jobs and support Canada’s economic transformation.”
A team of “professional investors” independent from government will operate this Fund, which the government says will be “capitalized with $15 billion”.
The new Fund’s mission will be to help transform Canada’s natural resource-based economy, focused on “emission-intensive industries”, into one that will “strengthen Canada’s position as a leading low-carbon economy”.
The big barrier to new investment in emissions-reduction technologies, the finance ministry tells us, is risk. The Canada Growth Fund will “mitigate these risks” for private investors.
The Economic Statement explains how new U.S. measures have created a challenge Canada must now match. To start, the Inflation Reduction Act includes a whopping US$369 billion in new climate and energy spending.
But almost as significant is what Biden’s Act does to eliminate risks for the private sector.
The Act “increases the loan guarantee authority of the U.S. Department of Energy’s Loan Programs Office almost tenfold—from US$40 billion to US$390 billion, which significantly expands available financing for new innovative clean energy projects.”
The finance ministry warns that “the magnitude of the Inflation Reduction Act’s incentives and expanded financing supports will … draw capital, talent, and raw materials away from Canada if we do not respond.”
The Canada Growth Fund is a key part of that response. But we will have to await the 2023 budget for more details on this initiative and further clean energy and economic transformation plans.
Modest and limited measures to address people’s needs
Apart from this preliminary sketch of an environmental industrial strategy, the Statement reiterates some of the NDP-style measures the government has taken over the past few months, such as an increase to Old Age Security, the Canada Dental Benefit, and doubling the Canada Student Grant.
It then adds a few new measures: advance payments for the Canada Workers’ Benefit, doubling of the GST credit for six months, and eliminating interest on federal student and apprenticeship loans.
There are also some targeted measures for homeowners and would-be homeowners.
Starting in 2023, the government will put in place a new Tax-Free First Home Savings Account. It will give prospective first-time home buyers the ability to save up to $40,000, tax-free.
Also starting in 2023 will be a new, refundable Multigenerational Home Renovation Tax Credit, “which would provide up to $7,500 in support for constructing a secondary suite for a family member who is a senior or an adult with a disability.”
Plus, the government will ensure profits from flipping properties held for fewer than 12 months are fully taxed. (Sale of a principal residence is not normally taxed).
The government claims this new ‘flipping tax’ will play a part “in lowering housing prices for Canadians”.
Notably absent, for now, are any new measures for a much-beleaguered group: tenants. They will have to hope for some good news in the 2023 budget.
Nor were there any measures designed to tax the windfall profits inflation has delivered to some corporations, especially in the retail food and energy sectors. New Democrats call this phenomenon greedflation and have been urging the Liberals to take it on.
Big business reacted favourably to the Statement, with some reservations.
As Goldie Hyer, president of the Business Council of Canada, put it: “The overall direction of the Fall Economic Statement is encouraging, but the government has to move even faster. The competitive pressures on Canada are increasing, interest payments on the federal debt are rising quickly, and the economic outlook is worrisome to say the least. Time is not our friend.”
Small business, represented by the Canadian Federation of Independent Business (CFIB), was much less happy.
CFIB president Dan Kelly put out a statement complaining about coming hikes in Employment Insurance and Canada Pension Plan premiums, coupled with expected increases to the federal carbon tax.
“There are zero measures in this document that will lower the tax pressures facing Canada’s small firms,” Kelly said.
The Liberal government can look at the range of reaction to what is, in essence, a modest effort and feel it has struck the right balance.
There have been times when these Fall Statements have produced dramatic new initiatives. Not this time.
The finance minister’s main intention is to lower Canadians’ expectations of what they can expect from government in this post-pandemic, inflationary period. In that, she has succeeded.
Freeland did so by treading carefully and not stepping too hard on anyone’s toes.
Ontario’s Doug Ford also wanted to lower expectations, in his case of what his government would offer thousands of its most poorly paid workers.
But the Ontario premier chose to stomp aggressively, and, in the process, stubbed his toe badly.
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