By Erik Henningsmoen and Mairead Matthews

The federal budget is published in the spring each year and outlines the government's main spending priorities.

This year’s federal budget focuses on Canada’s economic health and is described by the federal government as a plan to “build homes faster, help make life [more affordable], and grow the economy in a way that helps every generation get ahead.” It is a response to Canada’s increasing cost of living, declining output (GDP per capita), and the longstanding productivity gap between Canada and its OECD peers. Budget 2024 highlights technology and innovation as a way to address Canada’s productivity challenges. It seeks to “increase investment” and “encourage the kind of game-changing innovation that will create good-paying and meaningful jobs.”  

Economic Update  

Budget 2024 begins with an economic and fiscal overview. It indicates that Canada has likely avoided the recession that some had predicted. The government reports that inflation has fallen from a high of 8.1% in June 2022 to a low of 2.8% in February 2024, employment remains strong, unemployment is low by historical standards, real wages have increased, per capita foreign direct investment (FDI) remains strong, and GDP—while below potential—has grown.  

Still, Canadians face rising costs for groceries, housing, and basic needs; risks in the global economy threaten supply chains, commodity prices, and inflation; and Canada continues to struggle with productivity growth. While private sector forecasters and intergovernmental organizations project moderate economic growth for Canada—with real GDP growth of 0.7% in 2024 and 1.9% in 2025—there is also the risk of a “downside scenario,” where inflation and interest rates remain elevated for longer than expected and real GDP contracts by 0.1% in 2024.  

The government expects to add between $33.5 billion and $48 billion to the deficit. Third-party analysts note that, with a “program spending range between 15-16% of GDP over the medium-term,” Budget 2024 represents “a departure from the 12-13% of the Chretien-Martin-Harper years.” With a bigger state, the government has minimal capacity to absorb economic shocks and faces a larger burden of justifiying this spending, and demonstrating results, to maintain public trust.  

Ensuring Canada’s Workforce Is Prepared for the Digital Economy of the Future

Labour shortages present a significant barrier to Canadian innovation, productivity, and technology adoption. Preparing workers for the economy of the future is an important pillar of the federal budget plan. Specifically, the government proposes to:

  • Continue creating work placements for post-secondary students and helping businesses secure talent by providing $207.6 million to extend the Student Work Placement Program (SWPP). ICTC research on the value of the SWPP program for Canada finds that each student employed in a SWPP placement generates $401 in additional value for employers per month. Additionally, students earn $1,038 more per month from their SWPP placement than they would from their next best employment opportunity.  
  • Provide $50 million in financial support to the Sectoral Workforce Solutions Program to help technologically displaced workers access training in case their roles are displaced by technologies like AI. Jobs that require repetitive work or can be easily automated using robotics and AI are increasingly susceptible to automation.
  • Provide $39.2 million to Innovation, Science and Economic Development Canada  (ISED) to advance the next phase of CanCode, which equips Canadian youth with the skills they need to succeed in the digital economy.
  • Provide $351.2 million to the Youth Employment and Skills Strategy and Canada Summer Jobs programs to create 90,000 youth job placements and employment opportunities.
  • Work with Talent for Innovation Canada to develop a pilot initiative to attract, train, and deploy R&D talent to the bio-manufacturing, clean technology, electric vehicle manufacturing, and microelectronics and semiconductors industries.
  • Provide $60 million to Futurpreneur Canada to continue delivering entrepreneurship programs and empowering young entrepreneurs.
  • Provide $50 million to Employment and Social Development Canada (ESDC) for the Foreign Credential Recognition Program to streamline foreign credential recognition in the construction and health sectors; and provide $77.1 million to more effectively integrate health care professionals into Canada’s health workforce.

Expanding Canada’s Research and Development Activity

Expanding Canada’s R&D activity—as well as Canadian intellectual property development and ownership—is another key focus of Budget 2024. The government proposes to:

  • Strengthen Canada’s R&D infrastructure by allocating $2.4 to Canada’s compute infrastructure and $3.5 billion to strategic research infrastructure.
  • Develop Canada’s R&D talent and workforce capacity by increasing job-finding support and job funding for graduate and post-doctoral researchers and by working with Talent for Innovation Canada to develop Canada’s R&D workforce. ICTC research finds that access to R&D talent is a core reason R&D-focused companies choose to open R&D offices in Canada; going forward, it will be important for the government to leverage this strength to secure IP and economic rights for Canadian corporations when publicly funding foreign-controlled R&D.
  • Increase public funding for R&D by allocating $1.8 billion to Canada’s research councils; launching a capstone research funding organization to support mission-driven research; investing in Canada’s biofuels and space sectors; and creating an advisory Council on Science and Innovation to set innovation priorities and increase the impact of R&D funding. Notably, ICTC research suggests that funding R&D by businesses with strong geographic ties to Canada, such as real property or physical assets located in Canada, or a need to be close to Canadian industries, natural resources, or supply chains, will be important in ensuring publicly-funded R&D yields economic benefits for the Canadian economy.
  • Incentivize businesses to invest in innovation and R&D and protect their IP by capitalizing the Scientific Research and Experimental Development (SR&ED) tax incentive program with an additional $600 million over four years to the ongoing $150 million per year; launching a second phase of consultations on how to modernize the SR&ED program; and providing $14.5 million to support the Innovation Asset Collective’s patent collective pilot program. While recapitalizing the SR&ED program is important, ICTC research suggests that Canadian inventors do not own enough IP relative to the amount that they create, suggesting the government needs to do more to incentivize not just R&D, but R&D commercialization in Canada, such as by establishing a “patent box regime,” which is a type of tax instrument that incentivizes locally generated IP to also be commercialized locally.
  • Increase access to venture capital for equity-deserving entrepreneurs by delivering $200 million on a cash basis to entrepreneurs in equity-deserving groups.

Policy and Programs to Accelerate Canada’s Productivity

A core focus of Budget 2024 is accelerating Canada’s labour productivity growth—a measure of how much more income Canada is able to generate from each hour worked. Following on advice from the Bank of Canada in early 2024, the government indicates they will implement measures to accelerate Canada’s productivity, including:

  • Incentivizing businesses to invest in productivity-enabling infrastructure by delivering a suite of investment-focused tax credits—and allowing businesses to immediately write off the full cost of productivity-enhancing assets, such as patents, data network infrastructure equipment, computers, and data processing equipment.
  • Building business confidence to invest in and scale-up from Canada by leveraging Canada’s strengths to attract business investment; nurturing a stable and encouraging investment environment; reducing red tape; and proposing legislated procurement targets for small and medium-sized businesses.
  • While the government plans to implement a new Canadian Entrepreneurs’ Incentive to provide a tax break for entrepreneurs (reducing the eligible capital gains inclusion rate to 33.3% on a lifetime maximum of $2 million), it also announced plans to increase the inclusion rate on capital gains realized annually above $250,000 from one-half to two-thirds, sparking backlash from Canada’s entrepreneurship community, some believing that the policy would have the unintended consequence of raising the cost of building a business in Canada and therefore discouraging innovative businesses from being founded in and scaled from Canada.

Policy and Programs to Support Canada’s Artificial Intelligence (AI) Industry

Noting Canada’s significant strength in AI and the scale of AI employment, the government proposed a multi-billion-dollar suite of investments to support Canadian AI development and adoption. The government proposes to:

  • Launch a $2 billion “AI Compute Access Fund” and a supporting “Canadian AI Sovereign Compute Strategy,” which would help Canadian startups, scaling businesses, and researchers access computing power. A dearth of national computing resources has reportedly reduced the ability of startups to scale from within Canada, encouraging them to move their offices or headquarters abroad in order to scale.  
  • Provide $200 million in support to help Canadian startups commercialize AI products in strategic sectors like clean tech, health tech, agri-tech, and advanced manufacturing. Furthermore, $100 million has been earmarked to support the National Research Council's AI Assist Program, which helps innovators develop new AI products for commercialization. Unfortunately, research shows that Canadians do not own a lot of AI-related IP relative to the amount that they create, due to it being acquired by foreign entities. ICTC research from 2021 finds that being acquired or bought out by a foreign buyer is a common form of exit for Canadian AI startups. Within a dataset of 209 Canadian AI startups that ICTC compiled in 2021, those acquired by a U.S. entity versus a Canadian entity were more likely to hold IP, such as patents and trademarks, and received, on average, nearly twice the amount of government funding. Focusing AI investment on strategic industries—particularly “sticky” industries with strong geographic ties to Canada—is important.
  • Provide $50 million to establish the AI Safety Institute of Canada and $3.5 million to support Canada’s leadership in the Global Partnership on Artificial Intelligence. A further $5.1 million has been allocated to implement the Artificial Intelligence and Data Act.

Addressing Ongoing Challenges from Technology in Canada’s Digital Economy

Budget 2024 sets out to address a number of challenges from technology in Canada’s digital economy, including a lack of repairability and interoperability for ICT devices, growing cybersecurity risks, and a lack of consumer-driven banking options. Specifically, the government plans to:

  • Enhance the right to repair electronic devices and appliances in Canada with a focus on durability, repairability, and interoperability. The government proposes to carry out consultations on a national “right to repair framework” and support efforts to amend the Copyright Act to enable interoperability between farm devices and equipment. It has also called on the provinces to implement a right to repair in their respective regions.
  • Subject large online platforms to a duty to act responsibly and reduce users’ exposure to harmful content online. The government plans to provide $52 million to Canadian Heritage and the RCMP and create a Digital Safety Commission and Digital Safety Ombudsperson to support this effort.
  • Provide $1 million to the Financial Consumer Agency of Canada to prepare for Canada’s Consumer-Driven Banking Framework and launch an awareness campaign with Canadians. The Framework will require banks and fintechs to enable Canadians to securely share their financial data between different platforms and tools.
  • Provide $11.1 million to the Treasury Board of Canada to implement a whole-of-government cybersecurity strategy that ensures the government is equipped to combat cyberthreats. The Budget also proposes to provide $27 million to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) to enhance its cybersecurity and data security safeguards.
  • Amend the Telecommunications Act to prohibit telecommunications carriers from charging switching fees to customers when they change home internet, home phone, or cell phone providers. While this is a move in the right direction, a more competitive telecommunications sector is required to ensure Canadians have access to high-quality and affordable telecommunications services and can participate holistically in the digital economy.

Encouraging Environmentally Sustainable Economic Development  

Budget 2024 proposes a number of policies and programs to grow Canada’s green economy and make Canada’s society and economy more sustainable, including:

  • A new EV investment tax credit equal to 10 percent of investments in facilities used to assemble EVs, manufacture EV batteries, and produce EV battery materials. Budget 2024 also proposes to provide $607.9 million to top up the Incentives for Zero Emission Vehicles program.
  • A new Clean Electricity investment tax credit equal to 15% of investments in equipment or refurbishments related to electricity generation from wind, solar, water, geothermal, waste biomass, nuclear, or natural gas with carbon capture and storage; stationary electricity storage; and inter-provincial electricity transmission.
  • Approximately $3.1 billion in new funding for nuclear energy technology research and site remediation. Additionally, a commitment to support Canada’s capacity to generate nuclear energy, export nuclear reactor technology, and develop and deploy small modular reactor (SMR) technology. As discussed in ICTC’s clean energy report, nuclear energy will be key to helping Canada achieve its net-zero goals.
  • Approximately $1.276 billion to support clean fuel projects and biofuel production, distributed through the Clean Fuels Fund and the Canada Infrastructure Bank.
  • Approximately $237 million in new funding to support R&D on innovative and low-carbon construction materials. Additionally, $903.5 million in funding for Natural Resources Canada will support energy efficiency home retrofits.

This brief is part of ICTC’s policy updates series. ICTC provides timely updates on policy and political developments in Canada, including federal, provincial, and territorial election campaigns, fall economic updates, annual budgets, and other major updates to policy and programs. Written by Erik Henningsmoen and Mairead Matthews with generous support from ICTC’s Research and Policy Team.