The briefing also announces plans for a new tax on stock buybacks and major incentives for green energy investments, aimed at responding to a major package of tax and climate reforms passed this year through the US Inflation Reduction Act. The minimal new spending measures announced Thursday include making all student and apprentice loans in Canada permanently interest-free, at a cost of $2.7 billion over five years and $4 billion over six years to automatically issue advances of the Canada Worker’s Benefit who had qualified the previous year. But the overall message Ms Freeland sought to send is that the federal government is preparing for tougher times ahead. “We are keeping our powder dry,” she said in her speech to the House of Commons. In what the government sees as the most likely scenario, Canada’s economy will continue to grow modestly into next year and the federal deficit for this fiscal year will be $36.4 billion, an improvement over the forecast for $52.8 billion deficit in the April budget. largely from higher than expected inflation. The update’s baseline scenario projects a surplus of $4.5 billion by 2027-2028. But Thursday’s report also includes a “downward” scenario in which the economy slips into recession in 2023, which would push the deficit for that fiscal year to $49.1 billion and erase the projected return to balanced books. “It is important, both as Deputy Prime Minister and as Minister of Finance, that I am honest with Canadians about the challenges that lie ahead,” Ms. Freeland said. “Interest rates are rising as the central bank steps in to tackle inflation. And that means our economy is slowing down. … Anyone who claims that they could prevent future challenges is wrong.” The new spending announced in the update amounts to $22.1 billion over six years, or $3.7 billion a year on average. The baseline scenario adds an additional $8.5 billion over six years to cover “pressures expected to materialize in the near future.” This is separate from the “frontal” scenario. The new measures specifically related to stimulating business investment amount to $10.9 billion over six years. They include $250 million over five years for a package of new job training programs. There is also a new clean technology investment tax credit that will offer a refundable tax credit equal to 30 percent of the capital cost of investments in energy projects such as solar, wind and small nuclear reactors. The Department of Finance is planning consultations to include working conditions in order to access full credit. The department will also consult on a clean hydrogen investment tax credit, which was first announced in April’s budget. To encourage faster approval of large resource projects, the update announced $1.28 billion over six years for the Canadian Impact Assessment Agency and the Canadian Energy Regulatory Authority to increase their workload capacity. The proposed tax on share buybacks has not been previously flagged and is sure to spark significant policy debate, as it does south of the border. The US Inflation Reduction Act includes a 1 percent excise tax on stock buybacks, which refers to situations where companies use excess cash to buy back their own stock. US Democrats said the tax would raise billions in new revenue while encouraging companies to put extra cash into investments and wages. The economic impact of the tax and buyouts in general is a matter of considerable political debate. Ms. Freeland’s briefing proposes a 2 per cent tax that would apply to the net value of all types of share buybacks by public companies in Canada. The government says details of the new tax will be announced in the 2023 budget and will come into effect on January 1, 2024. “We tax share buybacks to make sure big companies pay their fair share and to encourage them to reinvest their profits in workers and in Canada,” Ms. Freeland said in her speech. Five years ago, members of the S&P/TSX 60 Index – some of Canada’s largest companies – spent almost twice as much cash paying dividends to shareholders as they did buying back their own shares. Now, share buybacks outpace dividend payments. TSX 60 companies spent $67.1 billion over the past 12 months to buy back their common stock, according to S&P Global Market Intelligence. That compares with $26.1 billion five years ago. Robert Asselin, senior vice-president of policy for the Business Council of Canada, said he was skeptical about Ms. Freeland’s vow of fiscal prudence. “They spend about 45 percent of the windfall they get on a very inflationary economy. To me, that’s not fiscal prudence,” Mr. Asselin said in an interview, adding that all their windfalls should have gone toward deficit reduction. He also said steps being taken to promote Canada’s competitiveness against the United States are “very preliminary first steps.” “At least they understand the magnitude of the problem and, to their credit, say it was a first step. They will be back with more. But on their own, I don’t think these measures will get us to where we need to be in terms of competitiveness.” He said the affordability measures, in the statement, struck him as a policy response to inflation concerns, given that the government has already made significant investments in its last two budgets to help with affordability concerns. “So I’m not sure it was needed, to be honest, but I think they felt the political pressure to be seen as helping people who needed help.” Thursday’s economic update projects that federal revenue for the current fiscal year will be $445.9 billion, an increase of 8 percent over the previous year, while program expenses will be $437.8 billion, a decrease of nearly 7 percent. Randall Bartlett, senior director of Canadian finance with Desjardins, agreed with the minister’s comment that the government is largely keeping its dust dry in the event of a 2023 recession. He noted, however, that the update suggests more spending announcements are coming in 2023 budget that have not yet been reserved. “When you put it on top of that, if there’s an economic downturn, it means the deficit outlook is going to be much deeper,” he said. The three main opposition parties in the minority parliament criticized the Liberal briefing, on different grounds. NDP Leader Jagmeet Singh told reporters the update failed to adopt the NDP’s proposals for an excessive profits tax and does not help Canadians struggling to afford higher costs for energy and groceries. “We are deeply concerned about the lack of concern for what Canadians are going through. But we’re not going to give up the fight just because we don’t see the figures in the autumn economic statement,” said Mr Singh, whose party agreed to keep the Liberals in power until 2025 in return for action on a list of specific NDP priorities such as dental care. Conservative leader Pierre Poilievre responded to the briefing in the House of Commons, criticizing the Liberals for failing to restore spending to pre-pandemic levels. Mr Poilievre said Prime Minister Justin Trudeau would leave the country with big deficits, just like his father, Pierre Trudeau. “We’re going to inherit this mess, all of us,” he said. “He’s going to leave a big mess like his dad left. He’ll go to a beach somewhere to surf and the rest of us will be busy working here to clean up the mess you left behind. The sooner that happens, the better.” The Bloc Québécois said the update failed to announce significant new funding for health care and the elderly and did not address problems with the Employment Insurance system. With reports from Ian Bailey and David Milstead
