Freeland's fiscal update pledges new guardrails to keep deficits in check

Freeland pledges guardrails

UPDATE 1:35 p.m.

The Liberal government's fall economic statement acknowledges the cost-of-living crisis weighing on Canadians but offers few new measures to tackle it while pledging to keep deficits in check.

Finance Minister Chrystia Freeland presented her fiscal update in the House of Commons on Tuesday, stressing the pressure inflation and a slowing economy are putting on federal finances.

At a time when the Liberals are facing pointed criticism from the Opposition Conservatives for years of deficit spending, the update outlines new guardrails to demonstrate fiscal restraint.

That includes setting a goal to keep deficits below one per cent of the GDP beginning in 2026-27.

The Liberals are also aiming to maintain the current fiscal year's deficit at or below the spring budget projection of $40.1 billion and lower the debt-to-GDP ratio in 2024-25 relative to the projection in the fall economic statement.

The new fiscal objectives come as the Liberals face an election in no more than two years' time, with the Conservatives enjoying a healthy, and widening, lead in public opinion polls.

In her speech in the House of Commons on Tuesday, Freeland took aim at Conservative Leader Pierre Poilievre's assertion that the country is falling apart.

"Building a Canada that delivers on the promise of the greatest country in the world will be our work for these next two years — and beyond," Freeland said, according to prepared remarks.

"Canada is not and has never been broken. We are the imperfect but remarkable creation of generations of Canadians who did their part to build a better country — in good times and in tough times, calloused hand by calloused hand."

On housing, the federal government is earmarking $15 billion for low-cost loans to developers as well as $1 billion for affordable housing.

It is also expanding its recently announced measure to remove GST charges off rental developments to include co-op rental housing.

The fall economic statement reaffirms the federal government's intention to tie federal infrastructure dollars to housing action by local governments.

Kevin Page, the former parliamentary budget officer, said the fall economic statement is an update on federal finances rather than a mini-budget, as it had been during the COVID-19 pandemic.

He said the reality of a slowing economy and high inflation means the federal government has little room to operate.

"There's this enormous economic uncertainty they have to deal with," Page said.

"I think they have to communicate that."

The federal government projects the deficit for the current fiscal year to come in at $40 billion, largely unchanged from its spring budget forecast, with deficits shrinking, but not disappearing, over five years.

The update adds $20.8 billion in new spending since the spring budget over five years, with some new measures designed to boost the housing supply, including rental units and affordable housing.

But much of the new spending is tied to policies and programs the federal government announced before Tuesday's fall economic statement, including billions of dollars for electric-vehicle battery plants.

Here are the highlights.

— $20.8 billion: New federal spending since the spring budget.

— $488.7 billion: Total government spending for the current fiscal year, through the end of March 2024.

— 1.1 per cent: The real rate of GDP growth for 2023. Growth is expected to decline to 0.4 next year, but the government says it doesn't expect the slowdown to result in a recession.

— $40 billion: The updated deficit for this year.

— $38.4 billion: Next year's projected deficit — a $3.4-billion increase from the government's previous projection.

— $15 billion: The amount of money expected to go toward loan funding, beginning in the 2025-2026 fiscal year, to build more than 30,000 homes across Canada.

— $1 billion: The cost of a new affordable housing fund over three years, beginning in 2025-2026, which the federal government projects will help build 7,000 new homes.

— Up to $7 billion: The proportion of a cleantech economic investment fund being allocated for special contracts intended to give companies the confidence they need to make major investments to lower their greenhouse-gas emissions.

— $309 million: Funding for a new co-operative housing development program, which the government says will go toward a co-developed program that it expects to launch in early 2024.

— $35 million: The projected cost of a public inquiry into foreign interference attempts, including $10 million this year, $22 million in 2024-2025 and $3 million in 2025-2026.

— $50 million: Money the government is proposing to spend over three years, starting next year, to support municipalities in cracking down on short-term rentals. The federal government also intends to deny income tax deductions when short-term rental operators are not complying with provincial and municipal rules.

— $129 million: The amount of money over five years that the government expects to spend on an updated Canadian journalism tax credit, beginning this year. Ottawa proposes to increase the cap on labour expenditures per eligible newsroom employee to $85,000, from $55,000. It is also increasing the amount of salary that can be claimed under the program to 35 per cent, from 25 per cent.

— Mortgage relief: The government says it will update its mortgage charter to ensure that financial institutions offer tailored relief and reasonable payments for borrowers.

— Tax break for co-ops: Co-operative housing corporations that provide long-term rental accommodations will be eligible for the removal of the GST on new rental housing.

— Tax break for therapy: The federal government will exempt GST and HST from psychotherapy and counselling services.

— Tackling junk fees: Ottawa is taking a more detailed look at so-called junk fees. It aims to make sure that airlines seat children under the age of 14 next to their accompanying adults at no extra cost and have the Canadian Radio-television and Telecommunications Commission launch an investigation into international mobile roaming charges.

— Adoption benefit: The fiscal update says a shareable, 15-week adoption benefit will be available as part of the employment insurance system, starting this year.

— Seasonal workers: The government says up to four additional weeks of regular employment insurance benefits will be available to seasonable workers beginning this year.

— Right to repair: Ottawa is moving to prevent manufacturers from refusing to provide the means of repairs of devices and products.

ORIGINAL 6:10 a.m.

Finance Minister Chrystia Freeland is set to present the traditional fall update on Canada's finances — a fiscal blueprint that's expected to include measures aimed at getting more homes built.

A senior government official, whom The Canadian Press is not naming because they were not authorized to share details publicly, confirmed Monday that several housing policies would be part of Tuesday's fiscal update.

The federal government is set to announce $15 billion in low-cost loans for builders as well as a $1-billion fund toward affordable housing, information previously reported by CBC News.

The loans are projected to fuel the construction of 30,000 new apartments, the official said.

The economic statement will also include help for local governments that are cracking down on short-term rentals. The measure, first reported by the Toronto Star, includes funding for enforcement and would prevent owners from claiming expenses-based tax deductions on their rental properties.

Freeland will also lay out a new Canadian mortgage charter that's expected to outline what Canadians should expect from their financial institutions when they are renewing their mortgages.

The focus on housing comes as affordability issues dominate federal politics and remain a major concern for Canadians.

The Canada Housing and Mortgage Corp. estimates Canada needs to build 5.8 million homes by 2030 to restore affordability, a goal that economists at the Crown corporation have conceded will be very difficult to achieve.

The Liberals have been rolling out a trickle of announcements and holding weekly news conferences in recent months, hoping to sell Canadians on the merits of their economic policies.

But with inflation and interest rates still high, the Liberals will be walking a tightrope between their planned spending measures and the risk that they could fuel an unwelcome spike in prices.

Bank of Canada governor Tiff Macklem recently warned that on aggregate, spending plans for all levels of government over the next year would risk fuelling inflation. He called for a fiscal policy to complement monetary policy.

Growth in the Canadian economy is also slowing under the weight of high interest rates, which threaten government revenues.

In the lead-up to the fall economic statement, Freeland has repeatedly signalled that fiscal responsibility is a priority for the federal government right now, and has warned that it won't be able to do "everything."

Robert Asselin, the senior vice-president of policy at the Business Council of Canada, said the federal government does not have a good track record when it comes to fiscal restraint.

"Unfortunately, in the past, every time Minister Freeland said 'fiscal restraint,' she has come up with huge spending," Asselin said.

Asselin, who used to be a policy and budget director for former finance minister Bill Morneau, said the federal government should prioritize getting a handle on inflation so that interest rates can fall.

"I really do think that the best thing they could do in the short term is not add fuel to inflation," he said.

Federal opposition parties, meanwhile, have laid out some of their own expectations.

On Friday, Conservative Leader Pierre Poilievre called on the Liberals to end the carbon price and "bring down interest rates and inflation by balancing the budget."

He also wants the government to adopt his proposal of tying federal dollars to municipal housing results, rather than pursuing agreements with cities through the Housing Accelerator Fund program.

That program invites municipalities to apply for federal funding based on their plans to boost housing development by making changes to bylaws and regulations, including allowing denser housing construction.

NDP Leader Jagmeet Singh has said he wants to see more action on affordable housing and grocery prices.

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