A tale of two budgets

Whereas Canada looks to deter new oil and gas drilling, the US budget looks to double down on fossil fuels.

President Donald Trump is sticking to his guns when it comes to supporting the fossil fuel industry in his executive orders and his budget, while at the same time his vocal support for infrastructure on the campaign trail is seeing less love by the numbers than many expected.

In his proposed budget, Canadian Minister of Finance William Morneau is building off of the 2016 budget with plans for a national infrastructure bank and a focus on shifting the economy away from fossil fuels and toward more climate-friendly practices.


Trump talked big about his infrastructure priorities on the campaign trail and there is much discussion about streamlining the process of choosing projects to fund, but the only infrastructure that is being monetarily prioritised in his budget so far is the wall on the US-Mexico border. He has proposed a 13% drop in federal transportation spending, 12% drop in housing and urban development spending, a 6% cut to the Department of Energy budget, and a whopping 31% cut to the Environmental Protection Agency. Under Trump’s proposal, federal subsidies to Amtrak and to a programme that supports commercial air flights from rural airports would be reduced and eliminated, respectively.

On a positive note, developers are anticipating that Trump's corporate tax cuts (from 35% to 15%) will be sufficient to incentivise the private sector to pick up the federal slack, and if the president's initiative to streamline permitting is successful, it could be a major boon to the infrastructure project space. 

Meanwhile in Canada, the federal government is pushing for further spending – beyond the commitments it made in last year’s budget – to light rail transit projects such as the Green Line LRT in Calgary and other similar projects across Ontario and Ottawa. In a budget fact sheet, the finance minister noted three priority areas for infrastructure spending including early learning and child care, an inclusive national housing strategy and a clean growth economy, the latter of which includes investment of $21.9 billion in green infrastructure.

In addition to these initiatives, the Canadian budget calls for creation of a national infrastructure bank with $35 billion of federal input that seeks to draw $4 to $5 of private money to match every $1 spent by the bank. The idea of an infrastructure bank – an institution that rests outside of the short-term political cycle and can help see through large projects that often take years to bring into operation – is one that has been fielded in many forms in the US, but has never been able to garner enough bipartisan support to come into being.

Fossil fuels

While the Department of the Interior’s budget would be slashed by $1.5 billion or 12%, the agency would see an increase in funding for programmes that drill for oil and gas on public lands in line with Trump’s campaign promise. At the same time, he seeks to roll back environmental regulations and an anti-coal agenda.

The Canadian budget proposal would rather seek to deter oil and gas drilling activities by “improving the neutrality of the tax system” and putting an end to a tax regime that favours carbon-heavy drilling. What are currently known as Canadian exploration expenses (CEE) which can be deducted in full on the first year of activity would be shifted to the Canadian development expenses (CDE) tax line and only qualify for a 30% write-off, paying more upfront tax and only seeing gradual deductions on successful endeavors.

The Canadian budget proposal is not entirely unfriendly to oil and gas economies, however, and sets aside a one-time payment of $30 million for Alberta, where much of the country’s oil and gas activities are based, in an effort to gradualise the effects of the change in focus.

Nationalism vs. Globalism

Trump has made it clear that his budget and policy is focused on “America First”—a message that eerily rings back to the World War II era when Dr Seuss was a political cartoonist. What that translates to on the budget, is a 7% increase on homeland security spending, a 10% increase on defense spending and a 6% increase on Veterans Affairs spending, with those being the only budget lines to see greater spending when compared to a 2017 baseline.

In contrast, Canada’s budget narrative can be summed up by an annual tradition in which the finance minister dons a new pair of shoes prior to releasing his proposal. This year, Morneau donned a pair of Poppy Barleys, shoes designed by two Canadian women and manufactured in Mexico, in a school classroom surrounded by a multi-cultural group of children including two young girls wearing hijab.