Billions for home building back-loaded, deficit projected at $40B in 2023-24: fall economic statement

The federal government's fall economic statement presented by Deputy Prime Minister and Finance Minister Chrystia Freeland on Tuesday includes billions of dollars in new spending and targeted policy measures aimed at increasing Canada's housing supply in the years ahead, with the deficit projected to be $40 billion in 2023-24.

Noting Canadians continue to feel the squeeze of inflation and high interest rates in their everyday lives, while increasingly becoming preoccupied about their looming mortgage renewals, Freeland's fiscal update is focused on responding to two pressing challenges: affordability and accelerating home building, while trying to maintain a degree of fiscal restraint.

As the minority Liberals continue to scale back new spending and try to find billions in savings, Tuesday's economic check-in on the country's finances is, as expected, not a major spending package. The more sizeable financial commitments are not set to roll out the door until 2025, the year of the next scheduled federal election.

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Continuing to reduce post-pandemic spending, the 2023 fall economic statement outlines $20.8 billion in additional spending over the next six years, beyond what was announced in the 2023 federal budget.

This includes an estimated $15.7 billion in new measures announced Tuesday and will be offset by a projected $2.5 billion in public sector reduction-centric savings, seeing net new spending work out to $13.2 billion, according to finance officials.

And, in an effort to signal ways the Liberals plan to support Canadians without further dipping into their pockets, the 131-page document also includes a series of cost-free policy and legislative pledges, including bringing forward a bill to create a new Department of Housing, Infrastructure and Communities.

Broadly, Freeland has announced Canada will be putting billions into building new homes, increasing the number of construction workers, cracking down on short-term rentals and grocery competition, as well as rolling out anticipated green investment tax credits.

The fiscal update also builds on the 2023 federal budget pledge to find savings within federal departments and agencies to help pay for key programs such as dental care, by announcing an expansion of those refocusing efforts to see $4.8 billion per year as of 2026-27.

Speaking with reporters inside the lockup in advance of tabling the fiscal document in the House of Commons, Freeland sought to make it clear that while the Canadian economy is slowing, the country is in a position of strength.

She said private sector economists now expect Canada to avoid a potential recession as was forecasted as a possibility this time last year. "The foundation of our fall economic statement is our responsible fiscal plan," Freeland said. "In the face of global inflation, our government has reduced the deficit faster than any country in the G7."

'TARGETED' HOUSING, RENTAL MEASURES

The core new commitments included in the fall economic statement centre on two themes: helping Canadians with affordability concerns, and creating more housing and jobs.

On the housing front, to eventually incentivize building more rental housing, the federal government will be offering up to $15 billion in new loan funding starting in 2025-26. The Liberals are calling this the "Apartment Construction Loan Program" rebranding an existing initiative that has already announced billions behind it.

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The government estimates this move will help build more than 30,000 new rental housing units across the country.

The program will see the low-interest loans facilitated through the Canada Mortgage Housing Corporation (CMHC) to allow builders to forge ahead on projects they may have previously shelved.

An additional $1 billion is also being earmarked for a new affordability-focused housing fund that, over three years and starting in 2025-26, will support non-profit, co-op, and public housing builds, aiming for 7,000 new homes by 2028. Alongside this, Freeland is promising $309.3 million in new funding for the "Co-operative Housing Development Program."

To protect homeowners worried about looming mortgage renegotiations at higher interest rates, Freeland has unveiled a new "Canadian Mortgage Charter" detailing the relief Canadians can expect from banks if they are in financial difficulty.

Under this new charter, the fall economic statement outlines some new expectations Canadians can have of their banks, namely: temporary extensions of the amortization period, waiving certain fees and costs, advanced contact with renewal options, and allowing lump-sum and prepayments.

New homes are constructed in Ottawa on Monday, Aug. 14, 2023. THE CANADIAN PRESS/Sean Kilpatrick

Freeland will also be moving forward with a policy measure she first signalled was on the horizon last month: cracking down on short-term rentals such as AirBnb and Vrbo properties, in order to expand the long-term rental supply nationwide.

To do this, the government will be changing the equation for property owners by denying income tax deductions on rental expenses incurred to earn short-term rental income for their short-stay properties in regions where short-term rental restrictions are in place, such as Toronto, Montreal, and Vancouver. They will also reject income tax deductions where short-term rental operators are not compliant with the permitting or registration requirements in place. 

Set to come into effect Jan. 1, 2024, this policy move is coming with $50 million over three years starting in 2024-25 to help support municipal enforcement of their short-term rental restrictions.

Lastly on the housing front, with this renewed interest in opening up more housing units to improve supply, and in return bring down costs, the Canadian government says "in the coming months" it will move ahead with plans to improve internal labour mobility to specifically help cut red tape for construction workers.

In an interview Tuesday on CTV News Channel's Power Play, Freeland said she "disagrees" with the early opposition criticism that the new measures announced in the economic outlook won't help Canadians in the immediate future.

"I think the point is we have been investing in housing since we formed government," she said. "We have been taking urgent action this fall with really meaty measures."

GROCERY, CONSUMER AND CLIMATE STEPS

On grocery store check-out pain, the fiscal update doesn't include any further cost-of-living rebate-type benefits to immediately put money into Canadians' pockets.

Instead, the government is pledging to continue with its pre-pledged plans to work with grocery giants to stabilize prices, investigate issues such as "shrinkflation," and establish a "Grocery Task Force."

Attached to this is a commitment to further amend the Competition Act and related laws to strengthen the Competition Bureau's powers to go after bad actors and anti-competitive practices across sectors. This pledge simply builds on pre-existing legislation known as Bill C-56 and incoming NDP-led amendments to it.  Also under the category of cost-less commitments, Freeland is re-stating vows to go after "hidden junk fees."

Prime Minister Justin Trudeau pauses to look at items in an aisle during a visit to a Fruiticana grocery store in Surrey, B.C., on Tuesday, November 14, 2023. THE CANADIAN PRESS/Darryl Dyck

The finance minister vowed Tuesday to come back to Canadians in the next budget – after already referencing the ills of these fees in the 2023 federal budget – on steps it is taking to reduce bank fees, while work at the CRTC and Canadian Transportation agency continues on mobile roaming and airline seating charges.

At the same time, the Financial Consumer Agency of Canada will work with banks on improving Canadians' low-cost and no-cost bank account options reflective of the uptick in account holders making online bill payments and e-transfers.

Tuesday's economic package also includes a promise to work with Canadian pension funds "to create an environment that encourages and identifies more opportunities for investments in Canada," including considering removing the "30 per cent rule" that restricts Canadian pension funds from holding more than 30 per cent of corporation voting shares.

And, while touting the suite of green economy measures are already underway, such as the development of battery manufacturing plans while expanding the eligibility for certain clean investment tax credits, Freeland's fiscal update also outlines the timeline for the government to deliver on its carbon capture, utilization, and storage investment tax credits, vowing legislation imminently and implementation by the end of 2024.

CHECK-IN ON THE DEFICIT, DOWNSIDE

The fall economic statement projects the federal deficit at $40 billion in 2023-24, relatively on par with the $40.1 billion forecast for that fiscal year, in the spring 2023 federal budget.

Unlike the last fall economic update, Freeland is not forecasting federal coffers will get back to balance at any point in the next six years. Rather, the deficit is set to be higher in each year ahead than was projected in the 2023 federal budget, remaining billions away from Prime Minister Justin Trudeau's long-broken balanced budget pledge.

The 2022-23 deficit sits at $35.3 billion, which was $7.7 billion lower than forecast. Looking to the years to come, in 2024-25 the fall economic statement projects the deficit will be $38.4 billion, in 2025-26 it is projected to hold steady at $38.3 billion, before declining to $27.1 billion in 2026-27, $23.8 billion in 2027-28, and still at $18.4 billion by 2028-29.

However, when looking to Finance Canada's "downside scenario" between 2024 and 2026, it is possible the deficit could balloon to $10 billion more than Freeland's baseline projection.

The downside projections also caution that the unemployment rate could hit seven per cent, if interest rates and weaker global activity lead to a shallow recession.

Further, public debt charges are forecast to rise from $46.5 billion 2023-24 to $60.7 billion in 2028-29.

Despite this, Freeland is striking a tone of optimism about the current state of the economy and its trajectory, noting there are one million more Canadians employed today than before the pandemic, and inflation is gradually coming down.

Statistics Canada reported Tuesday that the inflation rate slowed to 3.1 per cent in October, down from 3.8 per cent in September, bringing it closer to the Bank of Canada's target.

Once again, the Liberals are using their lowest deficit and net debt-to GDP ratios in the G7, and AAA credit rating as their key fiscal markers—with commitments to continuing to reduce the federal debt as a share of the economy over the medium term—though as former Bank of Canada governor Stephen Poloz said Monday, these metrics may be a "minimalist definition of a fiscal anchor."

Building on these, Freeland has also pledged to maintain a declining deficit-to-GDP ratio in 2024-25 and keep deficits below one per cent of GDP in 2026-27 and future years.

"Building a Canada that delivers on the promise of the greatest country in the world, that work will be our government's work for these next two years, and beyond," Freeland said in her House speech.

"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," Freeland said. 

OPPOSITION, MAJOR STAKEHOLDER REACTION

While Freeland's speech was met with a rousing applause from her Liberal colleagues, the opposition parties and certain stakeholder groups were less enthusiastic about Tuesday's economic update.

"Mr. Speaker, as we stand here today, and witness the misery that is visible across this country, it's hard to forget how good things were only eight years ago when this prime minister took office," said Conservative Leader Pierre Poilievre in his reaction speech in the chamber, going on to offer a laundry list of grievances with this government. "Inflation after hitting 40-year highs is back on the move, the economy is now shrinking, and if you add in per capita terms, it is plummeting."

Conservative Leader Pierre Poilievre responds after Minister of Finance Chrystia Freeland delivered the 2023 Fall Economic Statement in the House of Commons, Tuesday, November 21, 2023 in Ottawa. THE CANADIAN PRESS/Adrian Wyld

NDP Leader Jagmeet Singh told CTV's Power Play host Vassy Kapelos it's "a problem" that many of the new funding announcements will not take effect for at least two years when Canadians need help now, especially on the housing file.

"What we need right now is urgent action. And the urgency that we're up against is something that I don't think we've ever seen before. People with full-time jobs, people with good jobs that are losing their homes, they can't afford the rent… Things are so tough and [the Liberals] are not meeting the urgency of what people are going through," Singh said, while not indicating plans to pull the NDP's much-needed support for the Liberals.

The Bloc Quebecois, in response to the fall economic statement, accused the federal government of failing to understand the word "emergency."

In a press release Tuesday, Bloc Leader Yves-Francois Blanchet wrote that while his party will "evaluate the meagre new announcements on their merit," the financial outlook doesn't include measures significant enough to address the housing or affordability crises.

The Federation of Canadian Municipalities (FCM) expressed similar reservations about the feasibility of the new housing measures.

"While FCM acknowledges the federal investments in new housing construction announced today, the reality is that we cannot rapidly scale up new housing construction without also investing in the municipal infrastructure that supports it," said FCM president Scott Pearce in a news release. "We are concerned that the Fall Economic Statement does not reflect the scale of infrastructure investment required to meet the national housing supply gap."

The Canadian Federation of Independent Business (CFIB) said in a statement it was "deeply disappointed the federal government's 2023 Fall Economic Statement did not include any measures to help small businesses deal with the current challenges they are facing," notably pointing to the CFIB's still unmet call for another Canada Emergency Business Account (CEBA) repayment deadline extension.

Meanwhile, the Chartered Professional Accountants of Canada assessed the fiscal update as exercising "some prudence," but said in a statement that as CPA Canada members "we would have liked to see plans to balance the budget and implement a host of previously announced tax measures."

"Canadians struggling with affordability might have been looking for more in this update. However, the reality is that higher federal spending could contribute to inflation. That is exactly what we are trying to fight with higher interest rates, leaving the government walking a very fine line," said CPA Canada's chief economist, David-Alexandre Brassard.

Canadian Manufacturers and Exporters said it was pleased to see the timelines provided for the clean economy tax credits, and is encouraging all parties to work with the federal government to implement the suite of new measures "as quickly as possible."

With files from CTV News' Spencer Van Dyk