The pared-down budget update presented by Deputy Prime Minister and Finance Minister Chrystia Freeland shows the federal pocketbook has benefited from inflation, but the government is offering little in the way of new spending. Instead, the Liberals are prioritizing targeted measures for low-income Canadians and those with student debt. new tax on share buybacks by large companies. as well as the launch of the promising Canada Growth Fund intended to bring in new private investment to help reduce emissions and create new jobs. The autumn economic statement projects the federal deficit at $36.4 billion in 2022-23, down from the $52.8 billion forecast in the April 2022 federal budget. Freeland also predicts federal funds could return to balance by 2027-28. Speaking to reporters inside the lockup before her speech to the House of Commons, Freeland tried to make it clear that while the Canadian economy is slowing, the country is in a position of strength, citing Canada’s near-low unemployment rate and lowest net debt and deficit-to-GDP ratios in the G7. “What we’re announcing today, what we’ve done all along, is to strike a balance between the necessary compassion and support for Canadians, and fiscal responsibility,” Freeland said. “And we know we have to strike that balance because … We don’t really want to make the central bank’s job more difficult. We don’t want to put the Bank of Canada in a position where it has to raise interest rates and keep them there for more”. But just five pages into the federal government’s 92-page economic statement, it notes in bold that “global growth is expected to slow and recession risks have increased.” Noting that the global economy is at risk of falling into recession and consumer confidence is deteriorating, in a “bearish scenario” based on the government’s survey of private sector forecasters, the fall economic statement warned that Canada could enter a “soft recession in the first quarter of 2023”. “There’s a lot of concern that we could have a recession, so I think very sensibly, the government actually has a downside scenario where they’re assessing what would happen to the fiscal projection if we had a mild recession,” said chief economist with Deloitte Canada Craig Alexander told CTV News. He said this shows the government recognizes the economic risks out there and will likely continue to be favorable in other countries. The current climate calls for stability, a senior government official said speaking to reporters on a non-imbursement basis within the budget mini-lockdown. The official talked about how the federal government needs to maintain its flexibility to react to changing economic events while taking some steps to make it easier for workers and companies to deal with this uncertainty. Thursday’s updated economic forecasts come as Canadians feel the effects of higher living costs and higher interest rates as the central bank tries to tackle inflation, neither of which appears to be abating in the near term. Continuing the retreat from massive pandemic-era stimulus spending, the economic statement includes $6.1 billion in new spending in 2022-2023 and a total of $30.6 billion over six years. This includes funding for a number of previously announced items, including the Liberals’ affordability trio introduced in Parliament this fall, as well as a commitment to offer rebuilding funding to Atlantic Canada and Eastern Quebec after Hurricane Fiona.
SOME NEW ACCESSIBILITY MEASURES
As expected, with the Liberals reluctant to “add fuel to the flames of inflation”, the number of new affordability measures proposed in the autumn economic statement is minimal, but the Liberals promise:
Permanently eliminate interest on federal student and apprentice loans. The Liberals are proposing to make the federal portion of all Canada Student Loans and Canada Apprenticeship Loans, including those currently being repaid, permanently interest-free at a cost of $2.8 billion over five years. Canada Worker’s Benefit Advances and Rollover to Quarterly. This refundable tax credit would supplement the income of Canada’s lowest-paid workers in increments over the course of the year, instead of the way this relief is offered: through tax returns. To begin issuing advances to those already certified, the budget update proposes $4.6 billion over six years. and Consult with credit card companies and small businesses to reduce and regulate credit card transaction fees.
In an apparent attempt to shore up this rather minimal new spending, the Liberals have chosen to mark the update of their commitment to keep the housing affordability commitments already outlined in the 2022 federal budget, including the creation of a tax-free savings account for first time buyers and other measures to crack down on home flippers and foreign buyers.
Freeland’s budget statement also touts pre-existing initiatives such as the temporary doubling of the GST credit passed by Bill C-30, which is set to cost $2.4 billion and will start hitting their bank accounts from Friday; and the planned toping- increase the Canada Housing Benefit and initial dental coverage for children under 12 contained in the yet-to-be-passed Bill C-31.
ECONOMIC DEVELOPMENT, INVESTMENT PLANS
The fall economic update includes a plan to implement a two per cent tax on share buybacks by public companies in Canada, which Freeland sees as a way to encourage investment in their earnings and Canadian workers, while ensuring that these big companies pay their fair share. The Liberals estimate that the move, similar to a measure recently introduced in the United States, would boost federal revenue by $2.1 billion over five years, starting in 2023-24. On Thursday, the Liberals announced plans to launch the promised Canada Growth Fund by the end of 2022 and offered new details about its design, how it will work and the overall strategy. The federal government sees this fund as a new way to attract private capital to Canada, with a focus on helping Canada’s green energy sector grow and accelerating the development of new technology such as carbon capture. Unveiling a new clean-tech investment tax credit in the fall economic statement, the federal government highlighted how U.S. President Joe Biden’s recent passage of the Deflation Act created a sense of urgency for Canada to remain competitive. Thursday’s update also promises:
$250 million over the next five years to help workers adapt to changing global demands. This expenditure will go towards a new training center for sustainable jobs. a new stream of sustainable jobs for 20,000 apprentices and travellers. and a new sustainable jobs secretariat; $60 million over the next three years to create a new “employee rapid response fund.” and $802.1 million over three years, for the pre-existing Youth Jobs and Skills Strategy.
BALANCE DEFICIT, BACK TO BALANCE?
With government revenues benefiting from inflation and a stronger post-pandemic economic recovery earlier this year, if Canada stays on the government’s “core” trajectory, the deficit over the next five years is expected to continue to shrink more than was foreseen in the 2022 federal budget.
“What it reflects is the fact that tax revenue was significantly higher and their spending was also a little bit lower,” Alexander said. “The revenue side really reflects the fact that high inflation also means higher tax revenue for the Government of Canada.” If Canada stays on this economic trajectory, the deficit could shrink to $3.4 billion by 2026-27, an improved outlook from the $8.4 billion projected in the federal budget. Then by 2027-28, after the next federal election, the country could potentially see a budget surplus of $4.5 billion for the first time since the Liberals came to power and quickly broke their pledge to run a maximum deficit 10 billion dollars and balance the books by 2019. However, in the short term, under the federal government’s “decline scenario”, it is likely that in the event of a recession, the 2022-23 deficit could be $49.1 billion and rise to $52.4 billion in 2023-24. before returning to decline after a few years. “What’s important to know is, when you compare it to where we were during the pandemic, the deficit remains manageable,” Alexander said. The Autumn Economic Statement notes that relative to the 2022 Budget, public debt charges are the highest ever and are expected to rise to $34.7 billion in 2022-23, driven by a sharp rise in short-term interest rates. They may then ease slightly in 2024-25 as inflation and interest rates are forecast to ease.
THE FEDS’ FISCAL ANCHOR ‘EXCHANGE’
The federal government’s fiscal anchor as he sees it — paying down the COVID-19 deficits and reducing Canada’s debt-to-GDP ratio — remains unchanged, Freeland said Thursday, noting that the federal debt-to-GDP ratio is projected to decline continuously and on a steeper downward trajectory than projected in the 2022 budget. “Our economy is now 103 percent of the size it was before COVID hit… And when we get through the coming global slowdown… There is no country in the world better positioned than Canada to thrive,” Freeland said. In April’s budget, the Liberals pledged to reduce the deficit to just two per cent of GDP this year. The fiscal update projects it will be 1.3 percent of Canada’s $2.8 trillion economy, and the federal debt-to-GDP ratio is expected to continue to decline. “As a percentage of GDP, public debt charges remain very low…
