OTTAWA — Tuesday’s federal budget booked some major spending commitments for green technology, health care and inflation support. But in many other areas—from open banking to semiconductors to venture capital deployment—Ottawa was notably quiet. 

The government’s silence on those matters speaks to a broader tension underlying this latest budget, as the federal Liberals try to hasten Canada’s transition to a green economy without digging the country too deep into a fiscal hole. 

But while Ottawa met expectations on the first point, its fiscal integrity has backslid significantly on the second. Program expenses in Budget 2023 are expected to be $39 billion higher than projected just a few months ago in Finance Minister Chrystia Freeland’s fall economic statement. That spending nudged the government’s expenditures as a share of GDP up to 15.9 per cent in the current fiscal year, from about 15.3 per cent in last year’s budget. While that figure is expected to fall over a five-year horizon, Canada’s net debt-to-GDP ratio—a broad measure used to measure fiscal health—is declining at a slower pace than the government projected last spring. 

Overall, Canada’s debt position could remain the “envy” of other G7 nations, according to an analysis by Desjardins. But business groups warn that a continued reluctance to rein in spending and return to surplus could have longer-term implications on the country’s ability to meet its ambitious net-zero targets should Canada’s economic prospects sour. 

“Our country cannot borrow its way to prosperity,” Canadian Chamber of Commerce CEO Perrin Beatty said in a statement. While the business lobby was “pleased” with measures to bolster Canada’s green economy, it said the government needed to tackle other longstanding, sticky issues like regulatory burden and labour attraction. 

In a research note published on Tuesday, RBC analysts dubbed the budget “the Red Green Show,” referring to its combination of red ink and emphasis on environmental initiatives. Higher health-care spending and an expansion of the Canadian Dental Care Plan were “exactly the kind of budgetary pressures [the government] should have seen coming,” the note says, adding that Ottawa has still failed to shave down some of the pandemic-era spending that appears increasingly structural. 

Many representatives of Canada’s business and financial industries said new spending isn’t what was needed in the feds’ latest budget. Instead, in a time of higher debt costs and the need for more fiscal restraint, they called on the government to do more with less by focusing on more mundane tasks like regulatory overhauls and IP protection. Others wanted more funding, even as Ottawa comes under pressure to close the taps. 

Here’s what some segments of Canada’s innovation economy hoped to see in the budget, and how they responded to what ultimately appeared.

The money is there—it’s just not moving fast enough: Kim Furlong, CEO of the Canadian Venture Capital & Private Equity Association (CVCA), said the startup lobby group wasn’t looking for new money for Canada’s innovation sector in this budget. Capital isn’t the problem, she said; deployment is. 

Between the Venture Capital Catalyst Initiative, Export Development Canada and BDC Capital dollars, she said, “the government is capitalized to the level that it needs to be to address today’s needs.” 

But in this particular market, amid growing uncertainty around where startups and scale-ups may access funding, Furlong said there are other steps the government can take to bolster the sector. In a letter sent to Freeland in the days following Silicon Valley Bank’s collapse, Furlong and a group of stakeholders in Canada’s innovation economy called on the government to accelerate its rollout of some $700 million it planned to invest in the tech and startup space. 

Furlong said the government can also lower the fundraising threshold for investors in the government’s VCCI program, which currently requires them to raise 50 per cent of their fund before they can start investing that money. 

With investors lowering their risk appetite, Furlong said the government will continue to play a role in the innovation-funding space—but not as a charity. “Do we need government support? No. We need the government to invest.” 

Other-tech left out: Council of Canadian Innovators (CCI) president Benjamin Bergen dubbed last year’s fiscal plan “an innovation budget through and through.” Tuesday’s edition elicited a less salutary response. The scale-up lobby group welcomed Ottawa’s cleantech commitments, but repeated longstanding calls for more focus on creating and retaining intellectual property domestically. 

Bergen also lamented the lack of new funding for semiconductors, for which the country’s burgeoning chip-startup ecosystem had been hoping; and the deferral of details on updates to the scientific research and experimental tax credit, for which innovation-economy firms have long called. 

Technation, another industry association, expressed concern about the government’s pledge to cut its spending on professional services by 15 per cent, which—along with cancelling travel plans—it estimates will save $1.7 billion annually. Michele Lajeunesse, senior vice-president of government relations, called the focus on management consultants and short-term IT consultants “ill informed,” suggesting that Ottawa could instead “drive the necessary cost savings” through reductions in the use of long-term IT consultants to supplement departmental staff. However, she welcomed the $505 million allocated for health-care data.  

Low marks from higher education: The post-secondary sector had also hoped for more. Support Our Science, a faculty-student coalition, had called for increases to graduate scholarships, which have been flat since 2003. Tuesday’s document did not provide them. “Canada falls further behind each year with stagnant funding for graduate students and postdoctoral scholars in the face of rising costs,” said Courtney Robichaud, a postdoctoral scholar, in a statement provided by the group.

Last week, the government published a report from an advisory panel recommending it increase funding by 10 per cent annually for five years to the three granting councils that support post-secondary researchers. Tuesday’s budget said Ottawa is reviewing the advice and will follow up “in the coming months.” Universities Canada president Paul Davidson expressed disappointment. “With no new funding that matches the ambition of our peers, today’s budget is without the investments across Canada’s research ecosystem,” he said in a statement, citing U.S. allocations via the CHIPS and Science Act.

Fintechs left in the cold: Dominique Samson, vice-president of corporate affairs at Flinks, a Montreal-based fintech, said in an email that the company was hoping to see substantial and lasting funding for a governance entity to oversee common rules and customer safety in open banking, yet the budget made no mention of advancing open banking. 

That, said Samson, “leaves the fintech sector in the uncertainty it has been facing for too long already.” He added, “It’s been five years since the government started studying open banking, and three years since it committed to making it a reality.” He noted that the September 2023 target launch date for a new regime is quickly approaching. 

Fintechs were also keen on payments modernization, requesting legislative amendments allowing federally regulated payment-service providers to join Payments Canada. Membership would give service providers access to the forthcoming Real-Time Rail payment system designed to support instant payments. This also wasn’t mentioned in the budget. 

Alex Vronces, executive director of the industry lobby group Fintechs Canada, said in an email, “The big missed opportunity here is to give merchants more relief from transaction costs,” since expanded eligibility would allow for greater competition among payment networks. Together with related administrative fees, those costs add up to as much as $32 billion every five years, he said, citing Ernst & Young research. 

Members of the fintech industry are now looking ahead to the 2023 fall economic statement for updates on payments modernization and open banking. 

Decision-making to stay in the (EV) market: Among the budget’s key provisions were new tax incentives covering much of the zero-emission vehicle supply chain—measures structured to be even-handed, and make sure decision-making remains in the market, “because that’s where the expertise is,” a senior government official told reporters being briefed on the budget. 

David Adams of the Global Automakers of Canada said the tax-credit approach was very important for the auto industry, because it applies throughout the supply chain. Mike Moffatt said he agreed. “As long as you meet a certain criteria, everybody is eligible for this. …I think that makes a lot of sense,” said Moffatt, who is the senior director of policy and innovation at the University of Ottawa’s Smart Prosperity Institute. “Government isn’t necessarily picking favourite firms or favourite technologies, but is creating the conditions to be competitive with, particularly the United States under the [Inflation Reduction Act].” 

One area where the government did pick winners and losers: Critical minerals. It mentioned just six types of battery metals in the budget, from its prior list of 31 critical minerals, as being eligible for the new incentives, and focuses the tax credits on extraction, processing, or recycling. 

Jeff Killeen, director of policy and programs for the Prospectors & Developers Association of Canada, applauded the government’s focus on critical minerals and permitting reform, but is waiting to see whether it will include exploration, prospecting and development companies or leave the door open for other minerals.

“Our recommendations this year really did focus on similar concepts: incentives, tax credits, rather than the funds outlaid by the government,” Killeen said.

Update: Technation senior vice-president Michele Lajeneusse’s statement in this story has been updated, after the association initially sent an incorrect version.