Reflections on Budget 2025: Economic growth alone won’t save us

We have taken some time to reflect on last week’s budget.  

It is a hopeful budget, with commitments to get big things done. Canada faces real challenges, but we are a big, rich, powerful country. We are the world’s 9th largest economy, respected around the world, with deep commitments to diversity, democracy and the rule of law. Even though Canada faces enormous threats, we should be hopeful. 

We also note that no sacrifices are being asked of those who can most afford to make them, and very little is being done for the most vulnerable. The era of continental integration and globalization is over. Given the enormity of this geopolitical rupture, and the real suffering that many Canadians and communities are experiencing, more sacrifices could have been required of those of us who can afford to make them.  

What we like 

A sovereign industrial strategy that helps Canadians benefit from growth 

At Social Capital Partners, we have argued that Canada needs more diverse forms of ownership, including public and community ownership of our key resources and assets, so that we have more sovereign control over our future and so that a wider diversity of Canadians can benefit from growth. The government is taking some steps in this direction. 

The Budget is clear that the federal government must play a leadership role in industrial strategy and market-shaping activities. There is a recognition that we cannot simply expect capital to flow in productive ways that magically produce good results for Canada or for working people. The creation of new Crowns and agencies to break through regulatory hurdles and ordinary ineffective bureaucratic processes to get infrastructure and resource projects built, and to embed more Canadian ownership in our investments, are important.  

In particular, Build Canada Homes, the Major Projects Office and the new defense procurement agency and related initiatives are all welcome. Increased military spending, led by a new defense procurement agency, and expanded partnerships away from the U.S. and towards democratic allies, are also important. Rebuilding our sovereign industrial capacity is a strategic imperative. 

There is also a commitment to what appears to be a sovereign fund around critical minerals, which would be a positive step. Canadians should benefit from our own natural resources and steps to make equity investments are positive. We hope that these are first steps towards a more ambitious strategy and that the government can learn from its critical minerals strategy to quickly roll out additional sovereign funds, particularly around manufacturing, food and tech.  

In sum, we are pleased to see steps towards an industrial strategy that includes the creation of sovereign funds and a focus on key national imperatives. Along with the Canada Growth Fund and the work undertaken by Canada Development Investment Corporation (CDEV), Canada may at last break free from its deep belief that “capital knows best.” The world’s most successful and resilient democratic capitalist societies understand that governments must shape markets and incent capital in ways that produce broad economic benefits for working people. We may at last be catching up. 

Getting capital to the people and places where it will do the most good for Canadians 

At Social Capital Partners, we have highlighted that there are many gaps in our private and public financing infrastructure. Capital is simply not getting to enough people, places, businesses and organizations in ways that will create a dynamic, diverse and resilient economy. The government has taken some positive steps. 

There is an overall recognition that we need to use our public financing institutions more strategically. The expanded role and budget for the Canada Infrastructure Bank, which delivers public value at low cost, is welcome. Likewise, the commitment to the Business Development Bank of Canada (BDC) to launch a new Venture and Growth fund could be useful, but will require a clearer commitment to concessionary capital – that is, lending at more favourable terms than market rates in order to support other policy goals. 

These efforts complement clear commitments around getting more capital to those who have faced barriers to accessing capital in the past. In particular, a variety of commitments to Black and Indigenous businesses, entrepreneurs and communities will deliver returns in terms of growth and inclusion. The Buy Canada strategy is welcome if it is focused on getting more capital to Canadian-owned businesses, including small and medium enterprises, or SMEs. 

In sum, it is good that the government is exploring how it can use its balance sheet to get lower-cost capital to more people in ways that benefit more communities. But overall, these are tentative and underwhelming steps and we hope that, as the government gets more comfortable with concessionary financing, it will use its powers more urgently and ambitiously. 

Introducing more competition to help entrepreneurs and consumers  

At Social Capital Partners, we have long argued that Canada needs more competition, which should produce more innovation, productivity and growth. More competition will also create more pathways for Canadian entrepreneurs to enter and disrupt markets, and bring down prices for Canadians. 

The Budget takes tangible steps towards open banking and confronting the oligopolistic banking sector. The Budget commits to legislative changes that will make it easier for federal credit unions to scale and for provincial credit unions to grow. There are commitments to review bank and Interac fees (but we have heard those before). These should help Canadian consumers and businesses. The commitment to non-compete clauses in federally regulated sectors is also good for workers and a more competitive economy.  

In sum, there are many references to a more robust competition agenda and some tangible steps, but there is much more that needs to be done. In particular, it would be good to empower the Competition Bureau to confront the serial acquisitions and business roll-ups going on in communities across the country that optimize for short-term profits and, in turn, make life less affordable, suppress wages and enrich the wealthiest. 

Notable for their absence 

Legislative and policy changes to support a sovereign Canadian business transition strategy 

Trillions of dollars in baby boomers’ business assets are going to change hands in the coming years. These assets could transition to young Canadian entrepreneurs, not-for-profits, social enterprises and Employee Ownership Trusts (EOTs) through targeted programs and concessionary capital offered by BDC or another agency. This is a generational opportunity that could shape our economy and democracy for the next half century. It is one of the best things we could do to democratize the economy and prevent control of Canadian assets from drifting into the hands of American private equity funds. 

New community financing infrastructure  

Although there were some moves towards getting more capital into the hands of Canadian entrepreneurs, a strategy to finance smaller businesses, social enterprises, not-for-profits, co-ops, care providers and community organizations was absent. The community finance and social finance sector – and the networks of people, businesses and organizations that rely on them – have developed low-cost, scalable projects that require investment. All of the arguments used by the government in favour of catalyzing big pools of capital to invest in big projects apply equally well to mobilizing capital in favour of local, community projects. Canada needs new mechanisms and facilities to deliver concessionary capital and loan guarantees and these are essential to economic resilience, well-being and sovereignty. This gap in the Budget reflects a wider reality that the government has no strategy to support, engage or mobilize the not-for-profit sector. 

Intergenerational equity 

The Budget has little to say about the real concerns of younger Canadians. While there are some bits and pieces around summer jobs programs, this budget has no coherent or substantial approach to creating a more hopeful future for young Canadians. This is a reflection of a broader absence of focus on human capital and investments in education. And the housing measures are underwhelming, including the refusal to confront the asset inflation caused by wealthy investors in residential real estate. The Budget offers little other than vague hopes that jobs will be created sometime in the future due to private-sector investment. At SCP, we believe it is time to free up revenue for more investment in young people. We can find those resources easily by eliminating the age tax credit, eliminating the boost to Old Age Security (OAS) at age 75 and starting the claw-back of OAS at lower levels.  

Renewal of the tax incentive on Employee Ownership Trusts 

Making it easier for business owners to sell to their employees, and eliminating the financial hit they would otherwise take in doing so, is one of the most important things we can do to democratize the economy and access to wealth for many Canadian workers. The government has taken significant steps over the past two years to make the employee ownership movement a reality. The government is now threatening this progress by not making permanent its soon-to-expire tax incentive. Business transitions take time to plan and the tax uncertainty that the government is creating by sunsetting the incentive after December 2026 – before the model has even had a realistic chance to take off in Canada – will lead to more businesses being sold to American private equity or competitors. The government still has time to rectify this issue, but time is running out.  

Incenting or requiring philanthropic and pension fund capital to invest more in local Canadian impact  

There are some signals in the Budget that the government understands that big pools of Canadian capital should be investing more to advance community well-being and local impact. But this is mostly framed as increasing investments in infrastructure like airports, not local businesses and community infrastructure. If Canadian pools of capital continue to invest so little in domestic businesses, the government – and beneficiaries – will need to stop asking nicely. 

A digital sovereignty and democratic resilience plan  

Big American tech firms are undermining Canadian democracy, poisoning our information ecosystem, hurting our young people and cannibalizing Canadian businesses. The Canadian government continues to support them, patronize them and subsidize them in various ways. Meanwhile, the global authoritarian right is running a pretty standard playbook to undermine democracies around the world, including Canada. More resources and tools need to be mobilized today to protect us from these active threats. The Budget says “AI” a lot but offers few specifics on what the government will do to combat these threats to equality, democracy and our humanity. 

What next? 

We understand that this Budget is primarily focused on responding to corporate Canada’s long-standing complaints that the investment climate in Canada is not good and that the regulatory environment makes it too difficult to build things. We will soon see whether this Budget catalyzes the private sector to invest in Canada’s future and whether those investments produce sustained economic growth. 

But we were disappointed that there was so little about how to ensure whatever growth does occur delivers widespread benefits to Canadians, workers and young people. Canada is experiencing the end of the economic and geopolitical security orders on which we have relied and in which we have thrived.  

We believe we need even more ambition and creativity in our responses to this rupture. Unleashing private-sector capital investment in big projects will not be enough. We need new playbooks, deployed more aggressively, with the goal of mobilizing all of society, not just large private-sector players. 

There are specific initiatives that will help working people and the most vulnerable – the National School Food Program and automatic tax filing, for example. But these do not speak to the structural elements of the economy, which increasingly see benefits from economic growth flowing upwards towards fewer interests.  

The Budget talks about “sovereignty” and “control over our future,” but its prime directive is ‘growth.’ If we are to bend the curve on the current trajectory of both capitalism and democracy, we need economic growth that does not perpetuate grotesque economic inequality or make life less affordable for working Canadians.  

There are tools available to the government to prevent these outcomes if they choose to use them. We hope they will soon start to deploy them in a more sustained, intentional way.