Still, many businesses are still receiving subsidies for nearly half a million Canadian employees. The first job of the new government will be to figure out what to do with the businesses that have yet to fully recover.
During the campaign, Trudeau said that he was looking to "finish the fight" against the pandemic, which will involve more targeted supports to these businesses including programs like the Canada Recovery Hiring Program subsidy for incremental wages paid compared to the reference period for qualifying businesses.
CRHP is set to expire Nov. 20, and one goal of the program is to support existing companies that have yet to recover from the pandemic and to encourage working-age Canadians to get back into the labour force through potentially higher wages.
Addressing declining labour force participation rates and labour shortages will become a more acute problem over the next year. We note a significant increase in job vacancies from the first quarter to the second quarter, vacancies increased from 550,000 to 730,000. Finding ways to get people back into the labour force will be critical to ensuring a full recovery.
Building back better
The last part of the Liberals pandemic plan is what Trudeau has referred to as building back better. It is a catch-all term that means different things to different people. But it acknowledges the deep divisions in Canada's culture and economy exposed by the pandemic, and speaks to a more activist role for the state to address income inequalities, increase resilience and improve environmental outcomes.
Although Trudeau did not win a majority government , he will most likely have a free hand to govern as if he had one in the short term given that none of the other political parties will want to go back to the polls anytime soon.
We expect the Trudeau government to move quickly on the first stages of the national child care program, which was announced before the election and became a point of differentiation with the Conservatives. The program was one of the key reasons why the Conservatives were unable break into urban regions.
The full program, which promises $10 per day for child care, will take time to implement, but some financial support is expected in the short term. In Quebec, where a $10 per day program has existed for a long time, labour force participation rates for women are among the highest in North America and exceed the participation rates for men.
Getting more women into the labour force in the short term could help address some of the worker shortages that threaten to choke the recovery. Doing so could also generate broader socioeconomic benefits.
Meeting Canada's climate change objectives is another important objective, and the Liberal government has made progress from a policy perspective. Independent experts have praised the Liberals plan for its ability to meet Canada's targets on the Paris climate agreement and its cost-effectiveness.
We expect Trudeau to go further and accelerate Canada's climate change plan, which will include industrial policy-related actions that encourage the development of green industries and decarbonize high-polluting industries.
This could include a range of actions and investments including those related to supporting green energy projects, electric vehicle production along with associated infrastructure, carbon capture and storage, public transit, green and blue hydrogen, and small nuclear reactors.
Canada's carbon tax, which will increase to $170 per tonne by 2030, will create the foundation to encourage the development of these projects as will additional government incentives. If Trudeau can continue to set Canada on a path to meet its climate change objectives, that would cement his legacy.
Paying for the programs
But who is going to pay for all of this? The Liberals have proposed additional taxes on the largest financial institutions and insurance companies, the establishment of a minimum personal tax rule for people at the highest brackets, additional luxury taxes, and other measures. The parliamentary budget officer estimates that these measures would generate $8.2 billion by 2025-26, which is not nearly enough to pay for all additional proposed spending.
The Liberals are counting on robust economic growth to keep the debt-to-GDP ratio in line. But new spending proposed by the Liberals does not address some of the main items that could move the needle on enhancing Canada's productivity.
There is little on addressing infrastructure deficits or the funding formula that results in chronic infrastructure deficits. There is no mention of addressing interprovincial trade barriers, the elimination of which could provide a substantial boost to the economy. A major infrastructure package in the United States may shield Canada in the short term from tackling these complex and highly political issues.
The federal government will move quickly to the next phase of the recovery, one that is focused on addressing the dislocations caused by the pandemic. We expect the government to continue its activist role in the economy. Despite not winning a majority, the Liberals will govern as if they have one in the short term. In the end, this may have been the point of the early election.