Highlights from the 2024 Fall Economic Statement

In an unprecedented instance of spiraling political events, Chrystia Freeland announced her resignation as Minister of Finance just hours before the government unveiled its 2024 Fall Economic Statement (FES). Freeland had cited a disconnect with the Prime Minister over policy decisions, specifically around concerns regarding affordability and Canada’s approach to Trump’s tariff threats, as a basis for her decision amongst other considerations. Dominic Leblanc, the current Minister for Public Safety, Intergovernmental Affairs, and Democratic Institutions was sworn in yesterday as Freeland’s replacement.

While this change in leadership may prompt questions about Canada’s fiscal direction, the release of the FES provides clarity on how the Liberal government intends to support innovation, competitiveness, and economic growth in the coming year, and will likely serve as a glimpse into the LPC platform for an election year.

Below are some key highlights on innovation for the Fall Economic Statement.

Canadian Sovereign AI Compute Strategy ($2 billion): This strategy enhances access to computing capabilities for AI researchers, start-ups, and scale-ups. It includes:

$300 million over three years (2025-26) for an AI Compute Access Fund to reduce costs for SMEs.

$700 million over five years (2024-25) to Boost Canadian AI Champions, supporting projects that grow Canada’s AI ecosystem.

Up to $200 million over two years (2025-26) for targeted investments in existing compute infrastructure, including:

• $85 million for the Digital Research Alliance of Canada to expand compute capacity
• $60 million for AI Institutes (Mila, Vector, Amii) to support researchers.
• $30 million for VITAL to develop secure AI healthinfrastructure.

Strengthening the Pan-Canadian AI Strategy ($150 million): The FES proposes $150 million over three years for Global Innovation Clusters and $24 million over two years for National AI Institutes to accelerate AI commercialization.

Accelerating Digital Adoption for Small Businesses ($500 million): The Business Development Bank of Canada will receive $500 million over four years (2025-26) to provide financing and expertise for SMEs to adopt digital technologies, with a priority focus on AI.

Small Business Innovation and Procurement Act: Federal departments and agencies will be required to procure a minimum of 20% of goods and services from Canadian SMEs and at least 1% from innovative firms. It will also establish service standards, update procurement regulations, and enhance collaboration with SMEs.

Modernizing AI in the Public Service: A strategic review of government operations will focus on expanding AI adoption to improve service delivery and productivity.

• The public consultation results of AI Strategy for the Public Service by the Treasury Board Secretariat will be released in Spring 2025
• The review will be led by the AI Secretariat, Mark Schaan, with results expected in the Budget 2025.

Strengthening SR&ED Tax Incentives ($1.9 billion over six years): The Scientific Research and Experimental Development (SR&ED) program will see major enhancements, as the government looks to introduce new measures that will help businesses purchase and implement productivity-enhancing technology and make Canada a more attractive place to invest:

• The annual expenditure limit for the enhanced 35% credit increases from $3 million to $4.5 million.
• Taxable capital phase-out thresholds will rise from $10M-$50M to $15M-$75M.
• Capital expenditures are now eligible for SR&ED tax credits, reversing their exclusion since 2013 .

Catalyzing AI Infrastructure ($15 billion): The government will provide up to $15 billion in aggregate loan and equity investments for large-scale AI data centre projects in Canada. Canadian pension funds are required to co-invest at a 2:1 ratio, ensuring substantial private sector participation.

Extending the Accelerated Investment Incentive ($17.4 billion): The government will fully reinstate the Accelerated Investment Incentive, allowing immediate expensing for manufacturing, clean energy equipment, and zero-emission vehicles. This measure, applying to qualifying property acquired on or after January 1, 2025, will support businesses investing in productivity-boosting assets. The incentive will cost $17.4 billion over six years (2024-25 to 2029-30) and help maintain Canada’s competitive edge with the lowest marginal effective tax rate in the G7.

Federal Deficit and Investment Outlook: The federal deficit for 2023-24 has grown to $61.9 billion from $40B, surpassing prior projections.

Overall, the FES includes $24 billion in new spending over six years and could be described as investment-focused and tax-competitive. The federal government aims to create a more favorable investment environment while accelerating growth in Canada’s digital economy.