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Prime Minister Justin Trudeau looks at Anita Anand after she is sworn in as the President of the Treasury Board during a cabinet shuffle, in Ottawa, Wednesday, July 26, 2023.Adrian Wyld/The Canadian Press

Business groups say the federal government should prioritize getting Ottawa’s fiscal house in order and implementing tax incentives aimed at ensuring competitiveness with the United States’ clean-energy programs at this week’s cabinet retreat in Prince Edward Island.

Ahead of the three-day gathering in Charlottetown, the Business Council of Canada sent Prime Minister Justin Trudeau, Finance Minister Chrystia Freeland and Treasury Board President Anita Anand a letter laying out key steps the organization believes the government needs to take to better position the economy amid concerns of a downturn.

Failing to address the group’s priorities “invites greater uncertainty and risks exposing Canadians to a further erosion of their living standards,” writes the council’s CEO and president, Goldy Hyder, in the letter obtained by The Globe and Mail.

The group, which represents Canada’s largest companies, argues that the federal government needs to set a hard target on the level of debt it’s willing to take on, citing rising interest rates. Such a target is commonly called a fiscal anchor. The council wants the government to commit to limiting debt servicing costs to 10 per cent of government revenue, as recommended by former Bank of Canada governor David Dodge.

Numbers from the spring budget show Canada is almost at that mark. The government estimated that interest payments on Canada’s debt will eat up about 9.6 per cent of revenues in 2023-24. In the budget, the government also abandoned its timeline to balance the books within five years.

The International Monetary Fund released a report in July suggesting Ottawa adopt a specific fiscal anchor. However, that report also said the new spending unveiled in the 2023 budget was welcome and said it was “necessary” for Canada to address housing affordability by increasing the supply of housing. That issue will be the main focus of the cabinet retreat starting Monday.

The Business Council of Canada did not mention housing in its letter.

Last week The Globe reported that Ms. Anand gave her colleagues an Oct. 2 deadline to find about $15-billion in savings from spending plans for the next five years. In an interview, Mr. Hyder called the move a “good start” but said it amounted to a “rounding error” given that spending in this year’s budget alone is estimated at $490.5-billion.

In his letter, Mr. Hyder also raised concerns that the government has not yet implemented key policies from the spring budget. In March, Ms. Freeland announced $20.9-billion in tax credits over five years, the majority of which were for clean electricity, clean hydrogen and clean-technology manufacturing. However, the details for what will qualify under those programs aren’t yet final, which Mr. Hyder said is delaying investment decisions by companies.

Consultations on the draft legislation for the tax incentives close on Sept. 8, but the government did not provide a timeline for when the tax incentives will be finalized. Ms. Freeland’s spokeswoman, Katherine Cuplinskas, said in a statement that the tax relief will be retroactive because the government understands “Canada cannot afford to miss out on this opportunity to build a thriving, sustainable clean economy.”

The tax credits are aimed at ensuring Canada can compete with the massive subsidies rolled out by the Biden administration in its Inflation Reduction Act, which was in part aimed at spurring the transition to a cleaner economy.

However, with the U.S. subsidies already in place, Mr. Hyder’s letter says Canada’s slower pace means the country risks “losing out on a generational influx” of investment.

He also raised concerns about the speed at which the government is moving to revise its impact assessment and permit processes for major projects such as mines. The government has acknowledged it takes too long for major projects to move ahead and in the budget committed to address that by the end of the year. Ottawa did not provide The Globe with an update on the status of that review and whether it would be complete by the end of December.

Matthew Holmes, a senior vice-president with the Canadian Chamber of Commerce, said his group welcomed the government’s spending review and echoed the Business Council’s call for the government to move faster in rolling out the new tax credits and reforming the approvals process for major projects.

He said the government took too long to respond to the U.S. subsidies, noting that Canada’s response came seven months later in the budget. Five months after that, Mr. Holmes said, “we’re still waiting to see what it results in and what gets greenlit and what gets out of the gate.”

Mr. Holmes said the chamber welcomes the government’s move to prioritize housing. He said the group was encouraged by the federal government’s focus on increasing supply of both homes and purpose-built rental units. The lack of housing risks being a bottleneck to economic growth, he said.

The chamber also wants the government to reconsider its plans for a digital sales tax. Last month Ms. Freeland said that unless international talks set firm dates for an agreement to collect a greater share of the wealth generated by the world’s richest companies, Canada will proceed with a new digital sales tax, first outlined two years ago.

Mr. Holmes said the plan doesn’t make sense to the business community. “It is basically spitting in the eye of our largest trading partner,” he said, referring to the United States.

A senior government source called the business groups’ demands contradictory, saying that they are calling for fiscal restraint at the same time as they argue behind the scenes for a broad application of the clean-energy tax incentives, which would cost the treasury more money.

The Globe is not naming the source who was not authorized to discuss publicly the government’s internal plans.

The government’s spending review will look at the value of the programs it has rolled out over the past eight years to see what is working and where the most need is, the source said. However, the source cautioned that it might not result in savings and instead the money could be redirected to new programs.

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