Mostly good news for infrastructure; even better news for critical minerals
Budget at a Glance
Finance Minister and Deputy Prime Minister Chrystia Freeland tabled the first budget since the 2021 federal election yesterday in Ottawa. The budget, entitled “A Plan to Grow Our Economy and Make Life More Affordable,” pegs the current deficit at $113.8 billion, which is down from estimates in the fall, and anticipates a deficit of $52.8 billion for the fiscal year ahead. Canada will approach budgetary balance by 2026-2027 when the deficit is expected to be just $8.4 billion.
For ACEC members, it is worth noting that the 304-page budget held 90 mentions of infrastructure, a relatively short document based on recent history.
It was widely shared in advance of the announcement that there would be a significant focus on new defence spending and on housing. Both were heavily invested in to address two of the most significant challenges facing Canada and the world. In terms of new defence spending, the military will receive $8.5 billion in new investments over the next five years. Over $10 billion will be spent on construction, retrofits, maintenance and tax changes to increase housing supply and availability. Individual supports for people trying to buy a first home were also prominent.
Notably, there was significant emphasis on the transition to a cleaner economy. Many of the investments outlined as part of the chapter dedicated to “Clean Air and a Strong Economy” feature infrastructure prominently. The budget lacked the framing to show that infrastructure fuels economic growth on its own but did not skimp on new programs and initiatives that will keep many ACEC member firms busy over the years ahead. Especially noteworthy was the emphasis on, and investment in, critical mineral supply chains.
Analysis of Budget for ACEC
The centrepieces of the budget only tangentially affect infrastructure. New housing, particularly large complexes, will require the services of consulting engineering firms, but marquee national defence investments are not focused on infrastructure assets. Still, a plethora of economic growth, clean energy, finance and workforce adjustment priorities will benefit ACEC members over the coming years.
This budget shows that the federal government is aware of the increased urgency to use funds already committed to infrastructure. At the same time, the budget creates additional flexibility and incentives for project owners—whether private or public sector—to prepare for construction rapidly. This represents an honest effort to pull economic activity forward now, rather than running out the clock on funding that has been committed over the long-term. Municipalities and provinces both have disincentives to leave federal money on the shelf, and businesses should expect to be busier over the next 3 to 5 years as a result.
New investments in electrification, for Canada’s vehicle fleet, an expanded grid, and small modular reactors are more tangible than theoretical after today. Further, money is now committed for the development of critical minerals supply chains that will support the technological development needed to help industries leap forward with cleaner, greener technologies. The groundwork is being laid—figuratively—for more megaprojects and the government is rolling out a welcome mat for foreign investment and other private sector investment through incentives like the Canada Growth Fund and an Investment Tax Credit for Carbon Capture, Utilization and Storage.
It is concerning that there is little mention of skills development and training, given Canada’s demographic realities and the commitment to aim even higher in terms of new construction. Many firms, suppliers, and contractors are already operating at full capacity and one of the key bottlenecks in the economy seems to be a lack of skills, a lack of workers, or both depending on the sector and segment. The budget does aim to alleviate some of that pressure by enhancing the Temporary Foreign Worker Program in a way that will make it easier for reputable employers to recruit and retain workers. ACEC will need to be involved in these discussions as the budget makes it clear more details will be forthcoming.
Some grey areas will require the attention of our industry. It is concerning that the vague notion of “green procurement” by Public Services and Procurement Canada (PSPC) continues to be promoted with ‘more details to come.’ However, this may also offer an opportunity for ACEC to push for meaningful procurement reform. PSPC had already undertaken five trial procurements using Qualifications Based Selection (QBS) and 2022 has seen the release of several studies demonstrating how QBS can achieve better outcomes.
Finally, there is one area of potential overreach where ACEC will also have to register its concern. The federal government put forward a bill two weeks ago to authorize $750 million to municipalities to support public transit shortfalls. Now it intends to make that funding conditional on the willingness of municipalities and provinces to match funds and accelerate work on housing. These types of conditions may set a precedent that could cause further delays, which are counterproductive to the growth agenda set forth in the budget.
Overall, the budget presents a number of openings for ACEC to be vocal about the need for a National Infrastructure Assessment. Next steps will also include re-engaging departments and politicians to discuss the potential of a national infrastructure corridor to be a key pillar of intergovernmental cooperation on improvements to the national grid infrastructure, supply chains for critical minerals, and other nation building projects.
Highlights for ACEC Members
- The deadline for provinces to fully commit the remaining funding under the Investing in Canada Infrastructure Program is accelerated to March 31, 2023. The original deadline of March 31, 2025 will remain unchanged for the territories. The deadline for construction will be extended to 2033 to reflect challenges in timelines related to pandemic delays.
- The Canada Infrastructure Bank will have a broadened mandate to invest in small modular reactors, clean fuel production, hydrogen production, transportation and distribution,and carbon capture, utilization and storage.
- $500 million invested in large-scale charging and refueling infrastructure to help accelerate adoption of zero-emission vehicles (ZEVs). This funding comes on top of investments for smaller, more localized ZEV charging infrastructure.
- $1.5 billion over 7 years (2023-2030) for infrastructure investments that would support the development of critical minerals supply chains.
- $600 million over 7 years (2022-2029) to Natural Resources Canada for the Smart Renewables and Electrification Pathways Program to support additional renewable electricity and grid modernization projects.
- $396.8 million over 2 years starting in 2022-2023 to support the planning and design steps in support of high frequency rail between Toronto and Quebec City.
- $250 million over four years (2022-2026) to support pre-development activities on clean electricity projects of national significance such as inter-provincial electricity transmission projects and small modular reactors. Examples could include the Atlantic Loop or Prairie Link.
- 30% Critical Mineral Exploration Tax Credit for specified mineral exploration expenses incurred in Canada and renounced to flow-through share investors.
- Establishing a Pan-Canadian Grid Council which would provide external advice in support of national and regional electricity planning.
- Small modular reactor (SMR) regulation development and harmonization will be supported with $50.7 million over the next five years (2022-2027)to lay the groundwork for SMRs to be brought online in Canada.
- A commitment to support Green Procurement; PSPC will develop new tools, guidelines and targets to support the adoption of green procurement across the federal government. Additional details forthcoming.
- Extension of the Low Carbon Economy Fund with a further investment of $2.2 billion over 7 years (2022-2029) to provinces and territories to reduce emissions, generate employment, and build resilient communities through infrastructure and technology improvements.
- $2.6 billion budgeted over five years (2022-2027) with an annual cost of $1.5 billion in 2026-2027 for an Investment Tax Credit for Carbon Capture, Utilization and Storage (CCUS).Starting in 2022, the Budget proposes a refundable investment tax credit for businesses that incur eligible CCUS expenses. These could include geological storage, and storage of CO2 in concrete, but not enhanced oil recovery. From 2022 to 2030, investment tax credit rates would be set at:
These rates will then be reduced by 50% from 2031 to 2040 to encourage a faster transition.
- 60%for investment in equipment to capture CO2 in direct air capture projects;
- 50% for investment in equipment to capture CO2 in all other CCUS projects; and
- 37.5%for investment in equipment for transportation, storage and use.
- Canada Growth Fund – Capitalized at $15 billion over the next five years, this fund will aim to attract at least three dollars of private capital for every dollar invested in emissions reductions, economic diversification and export of low-carbon industries and new technologies, and the restructuring of critical supply chains, including the natural resources sector.
- Signalling the government’s intention to tie access to infrastructure funding to actions by provinces, territories, and municipalities to increase housing supply where it makes sense to do so through the Canada Community-Building Fund. It may also be applied to future infrastructure programs.
- A combined investment of $43 billion in new and existing funding, between infrastructure funding and the new Housing Accelerator Fund, over the next ten years to increase construction of homes.
- The federal government will tie a proposed $750 million public transit shortfall fund to the condition that provincial and territorial governments commit to match the federal contribution and accelerate work with municipalities to build more homes for Canadians.
- $398 million over two years (2022-2024) to Indigenous Services Canada to support community infrastructure on reserve, including at least $247 million to support water and wastewater infrastructure.
- The budget will also make it easier for employers who meet high standards of living and working conditions to employ Temporary Foreign Workers. $29.3 million will be invested over three years to introduce a “Trusted Employer Model” that reduces red tape, with further announcements forthcoming. $64.6 million will be invested over three years to increase capacity to process applications within established service standards.