The government has announced many new measures in Budget 2012. Although most are small in financial terms, they include important changes to the delivery of government programs. The new measures in general aim to promote economic growth and job creation.
The government will extend the Employment Insurance (EI) Hiring Credit for Small Businesses by an additional year. It will limit increases in the EI premium rate to five cents per year. Canadian businesses will continue to benefit from the government’s commitment to reducing red tape through a so-called “one for one” rule. Under this rule, every time the government adopts one new regulation, it must eliminate one existing regulation. Furthermore, the government aims to improve business access to the U.S. market, and vice-versa, by aligning the regulatory approaches between Canada and the United States.
Elevated commodity prices and strong demand from developing economies are driving demand for Canadian natural resources, helping to support investment activities, develop infrastructure investment, and create jobs in resource-rich areas. To further benefit from Canadian natural resource development, the government is proposing to streamline the review process for new projects in the resource sector through a “one project, one review” strategy. If properly implemented, the strategy will improve the regulatory process for businesses and speed up the pace of investment while safeguarding the environment through various measures, including consultation with First Nations.
Recognizing the innovative potential of business start-ups and the challenges they face in raising capital, the budget includes specific measures aimed at increasing private sector involvement in the Canadian venture capital market. In particular, the budget allocates $400 million to encourage private sector investments in early-stage start-ups and to support creation of large-scale venture capital funds. This funding is on top of $100 million in previously announced funding to the Business Development Bank of Canada to support its venture capital activities. Furthermore, the Scientific Research and Experimental Development (SR&ED) tax incentive program—one of the most generous systems for research and development (R&D) anywhere in the industrialized world—will be streamlined to better serve businesses while reducing the financial impact on government.
The budget also contains measures to address Canada’s looming labour shortages. Specifically, the government will spend $3.6 billion over the next five years on myriad measures to support job creation. It will invest $482 million over the next two years to revamp the EI program, by providing more timely information to unemployed Canadians, aligning the program with local labour market conditions and reducing disincentives to accept work while receiving EI benefits. The $330-million Youth Employment Strategy program will be bumped up by another $50 million to help more young Canadians gain skills and find employment.
As expected, the government announced that it will push back the age of eligibility for the OAS program from 65 to 67. The move is in response to population aging and the expected labour shortages that will emerge as baby boomers leave the work force. However, almost the entire baby boomer cohort will be protected from the current change. Without changes to the program, the Conference Board estimates the cost of OAS would increase by an average of 5.8 per cent between 2011 and 2030, significantly faster than revenue growth. By 2030, old age security would cost the federal government $105 billion a year or 20 per cent of revenues, up from $38 billion in 2011. The changes will be phased in gradually, starting in 2023, with full implementation coming only in 2029. Based on Conference Board estimates, this reform will reduce program costs by over 11 per cent when fully phased in.
Measures aimed at encouraging job creation include extending the Hiring Credit for Small Business program for another year. Under the program, employers receive a credit of up to $1,000 for every new worker they hire. The extension will cost the government $205 million. An added $275 million will go toward improving education facilities and opportunities—and thereby employability—in First Nations communities.
A more “targeted” approach will be taken toward immigration. That means attracting immigrants with skills that are in short supply in Canada, but discouraging the use of temporary unskilled workers if there are unemployed Canadians who can do the job. Skilled workers who applied under the previous program will be eligible to receive refunds of their application fees—a move that will cost the government up to $130 million.