Chapter 3 - Confidence in Canada's Economic Future

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Introduction

Canada needs an economy that works for everyone—an economy where the benefits are felt by more and more people, where Canadians have access to high-quality jobs and where Canadian businesses have greater confidence to seize new opportunities in an increasingly complex global economy.

The Canadian economy has experienced several years of heightened uncertainty. By 2014, global economic growth had started to accelerate following the Great Recession and the European debt crisis—but just as this recovery was taking hold, oil prices declined, resulting in job losses in Canada's oil producing regions and creating ripple effects throughout the Canadian economy. While the economy has recovered strongly, subsequent geopolitical events have created a number of new uncertainties for the economy, ranging from questions about the United Kingdom's future relationship with the European Union, to the potential impact of significant tax changes in the United States, to ongoing trade frictions between the United States and its major trading partners.

Despite these uncertainties, Canada continues to have significant untapped potential for stronger growth, whether driven through greater investments here at home, or greater access to markets around the world. With a rich endowment of natural resources, Canada is well positioned to satisfy emerging economies' demand for the energy and raw materials needed to sustain their growth. Further, Canada is positioned to be one of the world's cleanest suppliers of natural resources and one of the few major oil exporters with a price on carbon pollution.

With a highly skilled workforce and a strong capacity for research, Canada is ready to take on the challenge of competing in an increasingly knowledge-based global economy. With the recent negotiation of several trade agreements including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, the Comprehensive Economic and Trade Agreement and the new United States-Mexico-Canada Agreement, Canadian businesses have more opportunities to access global markets than they have ever had before. Today, Canada is the only country in the Group of Seven (G7) that has trade agreements with all other G7 nations.

The Government is committed to enhancing confidence in Canada by supporting Canadian businesses as they grow, expand into new markets, and create more good, well-paying jobs.

This focus on competitiveness is the fifth pillar in the Government's long-term plan to grow the economy. It joins investments in strategic infrastructure, skills and training, innovation and science, and trade and investment as a key driver of long-term growth that will benefit all Canadians for years to come.

In this Fall Economic Statement, the Government proposes to:

• Support business investment through new tax incentives that will increase investment in Canada.
• Set an ambitious agenda to make Canada the most globally connected economy in the world by diversifying Canada's trade with Europe and the Asia-Pacific region, helping businesses take full advantage of trade agreements, and offering continued support for Canada's innovators.
• Remove the barriers to trade within Canada, to support stronger domestic trade and growth.
• Make it easier for Canadian businesses to grow, by modernizing regulations while continuing to protect the health and safety of Canadians and the environment.

Accelerating Business Investment

In the face of ongoing global developments, it is essential that Canada continue to innovate so that businesses seeking to expand and grow can confidently choose to invest in Canada.

In December 2017, the United States passed a complex federal tax reform package—one that is estimated to increase the U.S. deficit by up to US$1.5 trillion over the next 10 years. It includes a significant reduction in the federal corporate income tax rate from 35 per cent to 21 per cent (to a level more in line with other industrialized countries), and the introduction of temporary 100-per-cent Bonus Depreciation for certain capital assets (effectively providing a 100-per-cent write off), both of which have significantly improved U.S. business tax competitiveness vis-à-vis the rest of the world. The U.S. tax reform also includes measures that increase taxes, such as limitations on the ability of businesses to reduce taxable income with business losses and interest expenses.

In Budget 2018, the Government committed to conduct detailed analysis of the U.S. federal tax reform to assess any potential impacts on Canada. Following through on this commitment, the Government has consulted with individuals and businesses to better understand how the U.S. tax reform and other developments are affecting businesses in Canada. The Department of Finance Canada has also conducted analysis to help identify impacts both generally and on specific industries.

Despite the significant reduction in U.S. corporate income taxes, Canada continues to have a tax system that offers businesses many tax advantages, including:

• A highly competitive corporate income tax rate for small businesses—in 2019, the combined federal-provincial-territorial average rate will be 12.2 per cent on small business income, by far the lowest in the G7.
• A value-added tax (i.e., the Goods and Services Tax/Harmonized Sales Tax) at the federal level and in many provinces that does not apply to most business purchases (unlike in the U.S., where many states impose sales taxes that apply to business purchases).
• Flexibility for firms to use business losses in order to access cash flow when they need it most by allowing for a 3-year loss carryback and 20-year carryforward, as well as a full offset of losses against taxable income.
• Favourable depreciation rules for long-lived assets such as buildings, which allow businesses to write off their investments faster.

Nonetheless, the U.S. federal tax reform has significantly reduced the overall tax advantage that Canada had built over the years, posing important challenges that, if left unaddressed, could have significant impacts on investment, jobs and the economic prospects of middle class Canadians. Specifically:

• With some businesses considering opportunities south of the border that would have previously been less profitable in the U.S. as compared to Canada, Canada is at risk of losing investment and jobs. This is especially true for businesses in sectors that are more sensitive to U.S. tax changes and most capable of moving production, such as manufacturing. Canada's business and investor community has expressed concern that the temporary Bonus Depreciation in the U.S. makes the U.S. significantly more attractive than before for businesses considering making new capital investments. The 2018 Fall Economic Statement responds to these concerns with new actions that will allow Canadian businesses to write off a larger share of the cost of newly acquired assets in the year an investment is made.
• There are also risks that firms will attempt to shift profits to the U.S.—or move expenses from the U.S. to Canada—in order to minimize their overall tax liabilities.

At the same time, the U.S. federal tax reform presents Canadian businesses with opportunity. The positive impact of the reform on the U.S. economy can be expected to increase domestic demand for goods and services—a positive development for Canadian companies that export to the U.S.

The Government is committed to ensuring that Canada continues to innovate in the face of international developments such as the recent U.S. tax reform and to responding in a fiscally responsible way. Because the full effect of U.S. tax reform on Canada's economy can only be determined over time, going forward businesses and governments will continue to consider the implications of the U.S. tax changes on the Canadian economy and the integrity of the Canadian tax system, including the details of different elements as they are established through regulation.

Enhancing Tax Competitiveness While Maintaining Canada's Current Fiscally Sustainable Track

Chart 3.1

Total Government Deficit-to-GDP Ratio

Total Government Net Debt-to-GDP Ratio

To that end, the Government is taking steps now to support Canada's competitiveness, while continuing to monitor the impact of the U.S. tax reform on Canada's business sector.

This Fall Economic Statement is proposing three important immediate changes to Canada's tax system, in order to enhance business confidence in Canada:

• Allowing businesses to immediately write off the cost of machinery and equipment used for the manufacturing or processing of goods—this will fuel new investments and support adoption of advanced technology and processes by this highly mobile sector of the economy.
• Allowing businesses to immediately write off the full cost of specified clean energy equipment to spur new investments and the adoption of advanced clean technologies in the Canadian economy.
• Introducing the Accelerated Investment Incentive, an accelerated capital cost allowance (i.e., larger deduction for depreciation) for businesses of all sizes, across all sectors of the economy, that are making capital investments. The Accelerated Investment Incentive will help to encourage investment in Canada, providing a timely boost to investor confidence.

Actions being taken in this Fall Economic Statement will provide focused, fiscally-responsible support for growth-generating investments in Canada—accelerating business investment while carefully managing the impact on the federal deficit. By their nature, these measures will influence new investment decisions, instead of providing tax relief based on past investment decisions as would occur with a reduction in the general corporate income tax rate. The measures will encourage businesses to invest in Canada, while giving them the help they need to seize new export opportunities. This comes at a time when after-tax profits for Canadian businesses are near record highs, and Canadian businesses have more room to invest and create more good, well-paying jobs in communities across the country.

After-Tax Corporate Profit Margins Have Increased

Chart 3.2

After-Tax Corporate Profit Margins, 1997-present

Introducing Immediate Expensing for Manufacturers and Processors

The manufacturing and processing sector is capital-intensive and highly mobile, and may be more affected by the competitiveness pressures arising from the U.S. tax reform. To ensure that Canada maintains a strong competitive position in the manufacturing and processing sector, the Government proposes that machinery and equipment used in Canada for the manufacturing and processing of goods be eligible for immediate expensing. With this change, the cost of machinery and equipment will be eligible for a full tax write-off the year it is put in use in the business. This change will provide timely support to help fuel Canadian investments in this important sector of the economy.

Immediate expensing will apply to qualifying assets acquired after November 20, 2018. It will be gradually phased out starting in 2024, and will no longer be in effect for investments put in use after 2027.

Introducing Immediate Expensing for Clean Energy Investments

One of the ways the Government currently supports the transition to a cleaner economy is by providing an accelerated capital cost allowance for clean energy equipment. To increase investment in the clean technology sector, the Government proposes that specified clean energy equipment be eligible for immediate expensing. With this change, the cost of specified clean energy equipment will be eligible for a full tax write-off the year it is put in use in the business. This change will encourage investments that create jobs for the middle class, help Canada in achieving its climate goals, and position Canada to be globally competitive.

Immediate expensing will apply to qualifying assets acquired after November 20, 2018. It will be gradually phased out starting in 2024, and will no longer be in effect for investments put in use after 2027.

Supporting All Sectors of the Economy Through the Accelerated Investment Incentive

Building on Canada's competitive corporate tax system and Canada's other key strengths, the Government proposes to introduce an Accelerated Investment Incentive to support all businesses that make capital investments. Under the Accelerated Investment Incentive, capital investments will generally be eligible for a first-year deduction for depreciation equal to up to three times the amount that would otherwise apply in the year an asset is put in use. Tripling the current first-year rate will allow businesses to recover the initial cost of their investment more quickly—reducing risk and providing businesses in Canada with a true incentive to make capital investments. The Accelerated Investment Incentive will apply to all tangible capital assets, including long-lived investments like buildings. The Accelerated Investment Incentive will also apply to intangible capital assets, such as patents and other intellectual property. This treatment is different from that of the United States, where temporary Bonus Depreciation is generally limited to assets with a normal useful life of 20 years or less, and excludes assets such as patents.  

It is expected that accelerated depreciation for investments in fibre connectivity, wireless service and broadband infrastructure will particularly benefit more remote communities, while helping to strengthen Canada's economy more generally. The Government has had positive discussions with Canada's telecommunications sector with regard to investment incentives and will work with the sector to ensure that the proposed incentives result in accelerated deployment of next-generation digital technology and rural broadband/rural wireless services across the country.

The Accelerated Investment Incentive will apply to qualifying assets acquired after November 20, 2018. It will be gradually phased out starting in 2024, and no longer in effect for investments put in use after 2027.

The Expected Benefits of Accelerating Business Investment in Canada

With immediate expensing and the Accelerated Investment Incentive in effect, the average overall tax rate in Canada on new business investment, as measured by the Marginal Effective Tax Rate (METR), will fall from 17.0 per cent to 13.8 per cent (see Chart 3.3). This will be the lowest rate in the G7, and significantly below the United States. The METR is important because it provides a good representation of the overall effect of the many tax factors affecting businesses in any given location. These tax factors include federal, provincial and territorial statutory corporate income tax rates as well as other features of the corporate income tax system, such as investment tax credits, key deductions like capital cost allowances, and unrecoverable sales taxes paid on capital purchases, which are particularly prevalent in the United States.

New Incentives Make Canada an Attractive Place to Invest

Chart 3.3

Tax Burden in G7 countries, 2016

Comparing the Marginal Effective Tax Rates on New Investments, Canada and the G7, 2018

Supporting Early Stage Mineral Exploration

The 15-per-cent Mineral Exploration Tax Credit helps junior exploration companies raise capital to finance early stage mineral exploration away from an existing mine site. From 2010 to 2016, mining companies raised an average of approximately $505 million of equity annually using the Mineral Exploration Tax Credit. The tax credit is scheduled to expire March 31, 2019. Given the continuing challenges facing junior mining companies, the Government proposes to support their mineral exploration efforts by extending the credit for an additional five years, until March 31, 2024. Announcing this extension now will reduce uncertainty, facilitate planning, and help junior exploration companies raise more equity. This measure is expected to result in a net reduction in federal revenues of approximately $365 million over the 2019–20 to 2023–24 period.

Mineral exploration, as well as new mining and related processing activities that could follow from successful exploration efforts, can be associated with a variety of environmental impacts to soil, water and air and, as a result, could have an impact on the targets and actions in the Federal Sustainable Development Strategy. All such activity, however, is subject to applicable federal and provincial environmental regulations, including project-specific environmental assessments where required.

Making Canada the Most Globally Connected Economy

Over the last three years, the Government has been working steadily to achieve a key goal—securing trade opportunities that can make Canada the most globally connected economy in the world.

Canada is, and always has been, a trading nation, and today Canadians recognize that trade can be a positive force for change. It can drive economic growth, create good, well-paying jobs for the middle class, and open up opportunities for Canadian businesses to grow and export. 

Canada Has Comprehensive Free Trade Agreements With Countries Representing Two-Thirds of the World's Total GDP

Share of the Global Economy to Which Canada Has Preferential Access

[Canada's free trade network - Text version]

Strengthening Free Trade Agreements

Canada has a unique place in the world—located next to the world's largest economy to the south, with close historic and economic ties to Europe to the east, and deep connections to the fast-growing Asia-Pacific nations to the west. With the successful conclusion of the United States-Mexico-Canada Agreement, as well as the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), Canada is the only G7 country to have free trade agreements with all other G7 nations.

Canada now has comprehensive free trade agreements (FTAs) with countries representing two-thirds of the world's total GDP. The Government's ongoing commitment to free trade with economies around the world—including those in emerging markets—will help to further strengthen and grow the middle class and deliver long-term economic growth that benefits all Canadians.

Accessing New Markets for Canadian Exports

Jobs in competitive, exporting sectors pay higher wages than industries that are not trade intensive—that is good news for the middle class and the communities they call home. To maximize Canada's export opportunities, however, Canada must adapt its approach to trade. For decades, Canada has lost global trade market share, and for too long Canada has been reliant on trade with a single partner: the United States. Canada's exports to the U.S. now account for three-quarters of all goods exports, and in some cases—as with oil and automotive exports—that figure is even higher. At present, 99 per cent of Canada's oil is exported to the U.S. This near-total reliance on the U.S. market, combined with pipeline transportation constraints, makes Canadian crude oil prices particularly vulnerable to developments in the U.S. This has been evidenced recently by temporary refinery shutdowns in the U.S., which contributes to a discount on the Canadian price of crude widening to its highest level in more than a decade.

The Government is committed to better position Canada within the shifts in global trade, by increasing exports to overseas markets in the Asia-Pacific region and Europe, as well as by developing new markets in services, digital products, health technology and e-commerce.

Global Trade Is Growing, Giving Canada New Opportunities to Expand Its Trade With Emerging Markets

Chart 3.4

Global Trade in Goods Has Increased, but Canada's Share of Global Exports Has Been on the Decline

Canadian Goods Exports by Region, 2017

Given the uncertainty created by recent global trade disputes, the Fall Economic Statement announces the Government's intention to significantly bolster export opportunities for Canadian businesses, and diversify Canada's overseas trade. More must be done to help Canadian exporters accelerate their presence in new markets, and take advantage of the new opportunities that exist because of the trade agreements the Government has secured in the past three years. To that end, the Government is proposing to launch an Export Diversification Strategy, with a target of increasing Canada's overseas exports by 50 per cent by 2025.

In total, the Export Diversification Strategy will invest $1.1 billion over the next six years, starting in 2018–19, to help Canadian businesses access new markets. The Strategy will focus on three key components: investing in infrastructure to support trade, providing Canadian businesses with resources to execute their export plans and enhancing trade services for Canadian exporters.

Investing in Infrastructure to Support Trade

To boost Canada's ability to trade overseas, the Government will accelerate investments in our ports and trade transportation corridors leading to Asia and Europe, including key ports on the east and west coasts. To inform these investments, the Government will be taking a comprehensive and strategic approach to reducing freight bottlenecks and seizing future opportunities along Canada's major trade corridors, by:

• Accelerating infrastructure spending—Investments in marine ports and along the busiest rail and highway corridors will help address transportation capacity constraints—providing new opportunities for Canadian businesses to get their products to international markets. To expedite projects over the next five years, the Government will establish a continuous call for proposals for the National Trade Corridors Fund. Backed by an accelerated investment of $773.9 million over five years, the Fund will prioritize projects that provide the best economic benefits, drawing on better transportation data and reviews of key challenges in businesses supply chains.  
• Improving transportation data—Better access to transportation data will help shippers optimize their routes, and help governments better target investments in order to have the greatest improvement in the fluidity of supply chains. In 2017, to enhance the quality and accessibility of transport data, the Government launched a Multimodal Integrated Passenger-Freight Information System, led by Transport Canada with Statistics Canada. To accelerate the implementation of the System, the Government proposes to provide an additional $13.6 million over the next three years, starting in 2019.

Investing to Help Canadian Businesses Export and Grow

While Canada has had success in gaining preferential access to key markets via trade deals, more must be done to ensure that Canadian firms take full advantage of international growth opportunities. In particular, small businesses represent 99 per cent of all businesses in Canada and employ more than 10 million Canadians, but only 11 per cent are currently engaging in exporting. The Government proposes to invest $198 million over six years to put more resources directly in the hands of Canadian businesses seeking to develop export plans, build global partnerships, or gain skills and training for global trade by:   

• Providing funding to Canadian small and medium-sized enterprises (SMEs) to help them explore new export opportunities—On June 29, 2018, the Government announced an investment of $50 million over five years to support businesses, including in the steel, aluminum and manufacturing industries, in diversifying their exports, including new export readiness grants. The Government proposes to build on this by investing a further $100 million over six years. This funding will go to CanExport and related funding programs to support businesses looking to reach new overseas markets, including providing them with funding to support participation in trade shows and trade missions, market research, legal fees and adaptation of marketing tools. This new funding will primarily target CETA and CPTPP markets.
• Creating a new mentors program—To provide high-potential exporting firms with the support they need to succeed, the Government proposes to provide new funding of $13.5 million over the next five years to establish a new mentors program, connecting Canadian entrepreneurs that are looking to move into new overseas export markets with seasoned Canadian business executives who have in-market experience.
• Expanding the Canadian Trade Commissioner Service's Canadian Technology Accelerator program globally—To provide Canadian technology firms with support, connections, and guidance in-market, the Government proposes to provide new funding of $17 million over the next five years to expand the successful Canadian Technology Accelerator in global technology hubs, such as Delhi, Hong Kong, and Tokyo.
• Making new investments in internships—To help Canadian start-ups housed in university-linked incubators scale up, the Government proposes to provide $7 million over five years to the Mitacs International Incubators Internships program, giving entrepreneurs in-person opportunities to connect with potential international clients and investors through incubators operating in Mitacs partner countries.
• Mobilizing SMEs for export initiatives—To help small and medium-sized businesses realize their export potential, the Government will provide $10 million over three years for export readiness and export capacity building initiatives. Some initiatives would be delivered in partnership with provincial/territorial governments, local organizations (such as Chambers of Commerce and Boards of Trade), incubators and accelerators, to help firms realize new international opportunities. Support will be targeted to businesses that have a high potential to export products and services in markets where Canada has gained a competitive advantage under recently implemented free trade agreements (e.g. CETA and CPTPP).
• International education strategy—To build more skills and provide training that will help support Canada's international trade and increase global ties, Global Affairs Canada and Employment and Social Development Canada will work together to develop a new international education strategy.

Enhancing Trade Services for Canadian Exporters

In addition to providing direct financial support and other resources to businesses to grow their overseas exports, the Government proposes to invest $184 million over the next five years to enhance the Canadian Trade Commissioner Service (TCS) and other federal capacity at home and around the world to support the growth and diversification of Canada's exports. This investment will make it possible to:

• Expand support for emerging sectors—To help Canadian businesses take advantage of fast-growing opportunities in technology and services exports, the Government proposes to invest $25.4 million over the next five years to expand TCS advice and services in areas such as digital, e-commerce and intellectual property.
• Expand support for agricultural exporters—To better engage with international standard-setting bodies and support efforts to meet the Government's goal of growing Canada's agri-food exports to $75 billion per year by 2025, the Government proposes to invest an additional $25 million over the next five years to enhance federal capacity to address situations where Canadian agricultural producers may be prevented from selling goods in international markets. This additional funding recognizes the agriculture sector's role as a key driver of economic growth, accounting for more than 6 per cent of Canada's GDP. The Government recently completed a successful trade mission to China, further expanding market access for Canada's agricultural producers.

• Launch a pilot partnership with Canadian banks—First proposed by the Bank of Montreal, the Government will launch a pilot partnership with Canada's leading banks including Bank of Montreal (BMO), Bank of Nova Scotia (Scotiabank), Canadian Imperial Bank of Commerce (CIBC), Royal Bank of Canada (RBC), National Bank of Canada and Toronto-Dominion Bank (TD) to help connect lending and business clients with key federal government resources such as the TCS. This partnership will help to better support a pipeline of new export-ready clients.
• Update Trade Commissioner Service tools—To introduce a refreshed digital presence, including new online tools for exporters, enhanced market intelligence, and tools to facilitate seamless client referrals between other federal and provincial partners, the Government proposes to provide the TCS with new funding of $60 million over the next five years.
• Expand services abroad—To increase the number of trade commissioners available to serve Canadian businesses in key overseas markets, the Government intends to invest $44.1 million over the next five years for capacity in China, India, and major markets involved in the CETA and CPTPP trade agreements.
• Expand services at home—To help more Canadian businesses find and enter new markets abroad, including how to make use of Canada's valuable new free trade agreements, the Government intends to invest $29.5 million over the next five years to increase the number of trade commissioners across Canada.

Removing Barriers to Trade Within Canada

In the summer of 2018, the uncertainty created by recent trade disputes led the Premiers and Finance Ministers of provinces and territories across Canada to agree on the importance of removing barriers to trade within our own country. In Canada, improving regulatory cooperation between provinces and territories represents an important opportunity to increase economic growth. A critical step in this direction was made with the recent Canadian Free Trade Agreement, which entered into force in July 2017.

Barriers to the movement of alcohol across borders have become a symbol of the friction in trade between provinces and territories. Eliminating these, and other barriers that are less visible to many Canadians, could improve Canada's competitiveness and help to create more good, well-paying jobs.  

Recognizing the opportunity that internal trade represents, the Fall Economic Statement reaffirms the federal government's commitment to strenthening freer trade within Canada, and proposes that the federal government will work with provincial and territorial partners to accelerate action to remove regulatory and other barriers in four specific areas:

• Transporting goods between provinces and territories (see "Harmonizing Requirements for the Trucking Industry" for one example).
• Harmonizing food regulations and inspection rules across the country.
• Aligning regulations in the construction sector, including the harmonization of building codes across Canada.
• Facilitating greater trade in alcohol between provinces and territories. 

Step by step, Canada can make progress on internal trade. The upcoming First Ministers' Meeting offers an opportunity to continue this important discussion on internal trade, alongside efforts to diversify international trade.

Making it Easier for Businesses to Grow

Regulations act as the "rule book" for how businesses must operate, and are an essential part of protecting consumers, ensuring the health and safety of Canadians, and safeguarding the natural environment. Over time, however, regulations can accumulate, become outdated, and result in unnecessary barriers to innovation and economic growth. The federal Economic Strategy Tables unanimously recommended that modernizing our regulatory system would materially improve Canada's ability to attract investment and growth-oriented businesses.

Budget 2018 outlined the Government's commitment to a regulatory reform agenda. This Fall Economic Statement proposes several new steps in the Government's efforts to reform and modernize federal regulations, while continuing to protect Canadians' health and safety and the environment.

What We Heard

“ Canada needs its regulatory system to move at the speed of commerce.”

“ Eliminating interprovincial regulatory barriers to trade is one of the most powerful actions our governments could take to increase long-term growth and prosperity in Canada.”

Explore Making Regulatory Efficiency and Economic Growth a Permanent Part of Regulators' Mandates

To ensure Canada's regulatory system is evergreen, nimble and effective, the Government is committing in the Fall Economic Statement to undertake important steps to modernize its regulators' mandates.

In this effort, the Government will continue to ensure Canada's regulatory system protects first and foremost the health and safety of Canadians. The Government intends to review legislation to assess whether opportunities for legislative changes exist to further solidify that regulatory efficiency and economic growth is an integral part of regulators' mandates. This would encourage implicated departments and agencies to simplify regulatory proposals, and better address other considerations when designing and implementing regulations, while continuing to prioritize health and safety and environmental responsibilities.

Enshrining this requirement in legislation would ensure that the economic impacts of new, revised or cumulative regulations are key considerations for regulators. The Government will undertake work this fall to determine where these changes may have the greatest impact.

Introduce an Annual Modernization Bill to Keep Regulations Up-to-Date

Many federal regulations have been developed and built up over decades. Over time, some regulations can become obsolete and present a real barrier to innovation. To ensure that federal regulations continue to be reviewed and kept up-to-date, the Fall Economic Statement announces that the Government will introduce an Annual Regulatory Modernization Bill, starting in 2019, to remove outdated or duplicative regulatory requirements, and to allow for the updating of regulations.

This annual exercise would allow the Government to modernize its regulations and facilitate innovation by promoting an up-to-date regulatory environment that reflects current public policy and business realities, challenges and opportunities.

Changes to the Red Tape Reduction Act will be implemented in early 2019, encouraging better alignment with key trading partners and recognizing the role regulatory cooperation plays in lowering costs for Canadian businesses and consumers. The Government will launch a full review of the Act by 2020 to seek further opportunities to reduce administrative burden and "red tape" on Canadian businesses.

Establish a Dedicated External Advisory Committee on Regulatory Competitiveness

Recent reports from the Canadian Chamber of Commerce, as well as panels convened to advise Government, such as the Advisory Council on Economic Growth and the Economic Strategy Tables, have made it clear that businesses need to be able to engage with Government on an ongoing basis to identify ways to improve the regulatory system.

In response to these suggestions, the Government will create an External Advisory Committee on Regulatory Competitiveness, which will assist Ministers and regulators to identify regulatory changes that promote economic growth and innovation, and help to deliver growth that works for everyone.

The Committee will bring together business leaders, academics and consumer representatives from across the country who can provide an independent perspective on barriers to business success, and help identify opportunities to streamline regulations, such as through legislation or other modernization activities, in a way that balances health and safety and environmental protection with business realities. The Committee will also provide guidance on where new regulatory frameworks are required to deal with emerging technologies, and will champion the use of regulatory sandboxes and pilots, including by helping to identify areas of focus for the Centre for Regulatory Innovation.  

Launch a Centre for Regulatory Innovation

The Economic Strategy Tables made a number of recommendations aimed at improving the regulatory environment for business, including the need for the greater exploration and use of sandboxes and pilots to ensure the regulatory system can keep pace with advances in technology.

Based on this advice, the Government will create a Centre for Regulatory Innovation. The Centre will work as a convener and focal point that is business-facing, helping businesses connect with relevant regulators and managing a roster of sandboxes—such as a physical space with regulators onsite while new systems are being tested—that support innovation and competitiveness, while also ensuring that Canadians' expectations around the protection of health, safety and the environment continue to be met.

To support the Centre and its objectives, the Government proposes to provide up to $11.4 million over five years, and $3.2 million per year ongoing, to enable business and the Government to work together to develop and implement regulatory experimentation approaches that encourage innovation, but do not compromise consumer trust and confidence.

Enhance Government's Capacity to Develop and Implement Effective Regulations

To ensure that federal regulators are able to keep pace with new requirements, the Government proposes to provide up to $10 million, over three years, to assist federal departments and agencies in strengthening their capacity to incorporate economic and competitiveness considerations when designing and implementing regulations.

Take Immediate Action in Response to Business Recommendations

The targeted regulatory reviews in high-growth sectors have already generated many ideas that can be acted on quickly, improving the regulatory environment in several key sectors, including agri-food and aquaculture, health/biosciences, and transportation and infrastructure.

As part of the Fall Economic Statement, the Government announces its intention to enact, as quickly as possible, regulatory and policy changes that will result in a simpler, clearer and more modern regulatory system—one that will also support the development of innovative approaches and products (some illustrative examples are provided below; for a complete list of 23 early "action items," see Appendix 3.A).  

1. Create business efficiencies by reducing the regulatory burden and simplifying government regulations. For example:
   • Integrate third-party oversight into the Canadian Food Inspection Agency's (CFIA) risk assessment and inspection model to inform inspections by CFIA inspectors. This change will recognize investments already made by the agri-food industry to implement third-party certification systems in their operations and will be done through the application of a risk-based approach to oversight that takes into account external audits.
   • Amend the Canadian Aviation Regulations to allow the use of personal electronic devices on board aircraft, reducing the regulatory burden on Canadian air carriers and removing a competitive disadvantage relative to other international air carriers.  
   • Reduce the duration of clinical trial record retention requirements, lessening the cost burden on clinical trial sponsors and investigators, with expected savings of up to $40,000 per clinical trial. 
2. Update and modernize government regulations. For example:
   • Amend the beer compositional standards to allow Canadian companies more flexibility in the ingredients and processes they can use to make beer, enabling the creation of new and innovative products to meet consumer demand without compromising food safety.
3. Work with industry to develop new regulatory approaches in support of innovation. For example:
   • Use a truck platooning system test bed (sandbox) to support the development and adoption of platooning technologies (the act of electronically hitching two or more heavy vehicles together to form a "road train"). This can improve fuel consumption and has the potential to improve the flow of traffic, helping industry to get goods to market more quickly, and at a lower cost.
   • Support test ranges for remotely piloted aircraft systems to accelerate the development and adoption of drone technology by various industries, as well as other activities to develop and enhance regulations. The safe and routine deployment of drones will allow companies in various industries to perform oversight tasks more effectively, such as crop monitoring and regular safety checks on pipelines in remote locations. 
4. Provide greater clarity and guidance to Canadian firms. For example:
   • Improve guidance on how new and novel plant varieties are regulated in Canada in order to provide clarity to Canadian and foreign firms interested in investing in Canada's biotechnology sector.
   • Launch work to modernize how digital health products, such as medical device software for wearables that monitor a person's health, including artificial intelligence products and services, are approved to incentivize digital health care innovation.
5. Harmonize domestic regulations and standards in Canada while promoting international regulatory cooperation. For example:
   • Reduce barriers to interprovincial trade in agri-food products by addressing duplication of federal, provincial and territorial regulations, including those related to meat inspection.

To further streamline regulations and reduce regulatory burdens on Canadian businesses and innovators, work will continue at Canada's formal regulatory cooperation tables with the U.S., the European Union and provinces and territories to align regulatory approaches and activities. Through these tables, as well as with other trusted international partners, Canadian regulators will explore the potential use of joint approvals in order to accelerate market entry for safe products in Canada and other countries. Where appropriate, regulators will also pursue mutual recognition of regulatory decisions and approvals, so that products certified and deemed safe by a comparable international regulator—be it a washing machine or a new digital technology—could be approved in Canada.

Helping Canadian Innovators Add Value, Succeed and Grow

Since 2015, the Government has been focused on investing in the things that matter most to Canadians, including making investments that help to create good, well-paying jobs. To that end, the Government has introduced a suite of innovation programs to help position Canada as a top destination for businesses to invest, innovate, grow, and create jobs that will help strengthen and grow the middle class.

One of the flagship programs is the Strategic Innovation Fund, introduced in Budget 2017. Since that time, it has proven successful in attracting and supporting high-quality and innovative business investment in Canada.

To accelerate support for business innovation in Canada, the Government is proposing to provide a further $800 million over five years to the Strategic Innovation Fund, which will continue to be available to support innovative investments across the country and in all economic sectors. Of this amount, $100 million will focus on providing support to the forest sector. Nearly 210,000 workers across Canada directly rely on the forest sector to provide quality employment and long-term prosperity. This funding will help support the ongoing transformation of the sector, through the commercialization of innovative processes and products from Canada's sustainable and significant forest resources.

Of this new funding for the Strategic Innovation Fund, $250 million is being made available in light of revenues collected through Canadian countermeasures (surtaxes) in response to unjustified U.S. tariffs on Canadian steel and aluminum products.

This new funding is in addition to the $250 million announced in June 2018 to support steel and aluminum producers and better integrate the Canadian supply chain of steel and aluminum. This measure was part of a broader package of up to $2 billion in support for the Canadian steel and aluminum industry and its workers.

Supporting Canadian Clean Technology Innovators Through Venture Capital

Venture capital is a type of private equity financing that takes educated risks on great ideas and smart people, giving young companies the opportunity to take their ideas to market, and grow.

In Budget 2017, the Government announced the Venture Capital Catalyst Initiative to support the continued growth of Canada's innovative companies by increasing the availability of late-stage venture capital. Under this initiative, the Government announced this year $400 million of new investments into top-performing and emerging fund managers, to enable them to increase their support to Canada's innovative companies. Further, these managers are expected to use this seed investment from the Government to raise additional capital from private sector investors, injecting around $1.5 billion into Canada's innovation capital market.

To continue this momentum, to meet Canada's climate change goals, and to help Canada's innovative clean technology firms bring their technologies to market, the Government will make available an additional $50 million on a cash basis to increase venture capital available to clean technology firms, under the Venture Capital Catalyst Initiative. A thriving market for clean technology will also help all firms across Canada improve their efficiency and lower their carbon pollution footprint.

Gender-Based Analysis Plus of Chapter 3 Measures

Gender equality and diversity continue to be priorities for the Government, which is reflected through the incorporation of analysis related to gender and intersecting identity factors in all elements of this year's Fall Economic Statement. The measures contained in Chapter 3 are designed to stimulate investment and catalyze growth of the economy as a whole. While some initiatives, like immediate expensing for manufacturers, processors, and clean energy, are focused on certain sectors, most are broad-based, for instance regulatory reform and improvements to internal trade. Each of these measures is aimed at creating a stronger economy that will benefit all Canadians through increased government revenues, strengthened job creation and confidence. Recognizing this, the analysis below focuses on some of the additional impacts of these measures from a GBA+ perspective.

Overview of Gender-Based Analysis Plus of Chapter 3 Measures

Appendix 3.A
Early Action Items From Regulatory Reviews

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