The likelihood that Canada may experience a recession is increasing even as the deficit is decreasing, according to the federal government’s fall economic statement.
The government deficit is predicted by the fall economic statement to be $36.4 billion in 2022–2023 as opposed to the $52.8 billion expected in the federal budget for April 2022. Freeland anticipates that by 2027–2028, the federal budget may be back in balance.
Chrystia Freeland, the deputy prime minister and minister of finance, provided a condensed fiscal update that demonstrates how higher revenues have benefited the federal budget. However, as was to be expected, the government is not introducing many new policies to assist most Canadians in coping with their high cost of living in order to avoid escalating inflation.
Instead, the Liberals are placing a higher priority on targeted programmes for low-income and student loan holders, a new tax on large corporation share repurchases, and the establishment of the long-promised Canada Growth Fund, which will attract new private investment to help reduce emissions and generate new jobs.
Prior to her speech in the House of Commons, Freeland spoke with reporters inside the lockup to emphasise that while the Canadian economy is slowing, the country is still in a strong position. She cited Canada’s nearly record-low unemployment rate and the lowest net debt and deficit-to-GDP ratios in the G7.
A senior government source who was speaking with reporters inside the mini-budget lockup on a non-attribution basis stated that the current atmosphere calls for firmness. The representative discussed how the federal government must maintain its adaptability to respond to shifting economic events while also taking some actions to help people and businesses through this unpredictability.
The 92-page economic statement from the federal government states boldly on page five that “global growth is anticipated to weaken, and recession risks have grown,” describing how the world economy is at risk of entering a recession and consumer confidence is declining.
According to a “downside scenario” based on the government’s survey of private sector forecasts, Canada might experience “a moderate recession in the first quarter of 2023,” according to the fall economic statement.
Craig Alexander, chief economist at Deloitte Canada, said that by presenting this worst-case scenario, the government is demonstrating that it is aware of the economic dangers present but still believes that Canada will continue to perform favourably in comparison to other nations.
A Few New Measures Towards Affordability
The economic statement proposes $6.1 billion in additional investment in 2022–2023—a further pullback from the enormous stimulus spending during the pandemic—including a $1 billion cushion for “expected near-term constraints.” Overall, over a six-year period, the measures mentioned in the fall economic statement would cost $30.6 billion.
Last includes cash for some previously stated initiatives, such as the Liberals’ trio of affordability proposals proposed in Parliament this fall and their promise to provide reconstruction aid to Eastern Quebec and Atlantic Canada in the wake of Hurricane Fiona.
The fall economic statement only includes a small number of new initiatives to improve access to affordable housing, but the Liberals vow to:
- Interest on federal student and apprentice loans should be permanently eliminated. The Liberals’ plan would cost $2.8 billion over five years and eliminate interest on the government component of all Canada Student Loans and Canada Apprentice Loans, including those that are already being repaid;
- Advance Pay and change the Canada Workers Benefit to a quarterly schedule. The income of the lowest-paid workers in Canada would be supplemented by this refundable tax credit in annual increments as opposed to the existing method, which is through tax returns. The budget update suggests $4.6 billion over six years to start giving advance payments to people who are currently qualified;
- In order to reduce and regulate credit card transaction costs, consult with small businesses and credit card providers.
The Liberals chose to note in the update their commitment to uphold housing affordability commitments already outlined in the 2022 federal budget, including creating a tax-free savings account for first-time buyers and other measures to crack down on house flippers and foreign buyers, in an apparent effort to support this rather minimal new spending.
In addition, Freeland’s fiscal statement highlights ongoing programmes, such as the temporary doubling of the GST tax credit passed through Bill C-30, which is expected to cost $2.4 billion and begin to affect people’s bank accounts on Friday, and the anticipated boosting of the Canada Housing Benefit and the beginning of paediatric dental coverage in the as-yet-unpassed Bill C-31.
In order to incentivize multinational firms to invest in their Canadian operations and workforce while ensuring they pay their fair part, Freeland proposes a two percent tax on share buybacks by public corporations in the fall economic statement.
According to the Liberals, this action, which is comparable to a proposal that was recently made in the United States, would increase federal income by $2.1 billion over five years, beginning in 2023–2024.
The Liberals committed to create the “Canada Growth Fund” by the end of 2022 and provided fresh information on its structure, operations, and general strategy on Thursday.
With an emphasis on fostering the expansion of the country’s green energy industry and accelerating the adoption of cutting-edge technologies like carbon capture, the federal government views this fund as a fresh method to draw private money to Canada.
The federal government highlighted how U.S. President Joe Biden’s recent signing of the Inflation Reduction Act has generated a feeling of urgency for Canada to stay competitive while announcing a new investment tax credit for clean technology in the fall economic statement.
The Thursday update further promises:
- $250 million will be allocated over the following five years to aid employees in adjusting to the shifting needs of the global market. This money will be used to establish a new sustainable jobs training centre, a new stream for 20,000 apprentices and journey persons, a new sustainable jobs secretariat, a new “rapid response fund for workers,”
- $60 million over the next three years for “rapid response fund for workers”,
- $802.1 million over three years for the current youth employment and skills strategy
With government revenues benefiting from inflation and a stronger post-pandemic economic bounce earlier in the year, if Canada stays on the government’s “baseline” track, the deficit is expected to fall more than what was anticipated in the 2022 federal budget.
“What that represents is that tax collections have been much greater, but spending has also been slightly lower,” Alexander explained. “The revenue side basically reflects the reality that rising inflation brings increased tax receipts for the Canadian government.”
If Canada continues on its current economic path, the deficit might be reduced to $3.4 billion by 2026-27, a reduction from the $8.4 billion forecast in the federal budget. The country might then experience a $4.5 billion budget surplus in 2027-28, following the next federal election, for the first time since the Liberals came to power and swiftly abandoned their promise to run maximum deficits of $10 billion and balance the books by 2019.
However, according to the federal government’s “downside scenario,” if a recession occurs, the deficit in 2022-23 could be $49.1 billion, rising to $52.4 billion in 2023-24 before declining over the next several years.
Aside from the economic implications of the fall economic statement, the update is already causing consternation on Parliament Hill, as the Liberals have attempted to balance opposing requests from the opposition parties.
The Conservatives advocated no additional taxes or expenditure unless it was offset by savings, whilst the NDP sought greater assistance for individuals and more measures to combat “corporate greed.”
Conservative Leader Pierre Poilievre focused on the government’s choice to maintain spending rather than channelling all of the enhanced tax income windfall toward paying down the deficit in his response to the economic report in the House of Commons.
“Liberals will now claim that they were forced to increase the debt. This prime minister will say that it is not his responsibility that he has accumulated more debt to the national debt than all previous prime ministers combined “Poilievre said. “So Conservatives will stand up for the regular people’s salaries, houses, and savings, and we will vote against this inflationary expenditure,” he stated.
While the update suggests that the Liberals are turning their backs on Canadians in difficult circumstances, NDP Leader Jagmeet Singh says his party will still support the update and the legislation that would put it into effect.
Singh criticised the budget report for failing to include a windfall tax on oil and gas corporations earning record profits, as well as the NDP’s sought EI system improvements. Nonetheless, Singh stated that they will not relent on the power they have with the Liberals as a result of their confidence-and-supply arrangement.
“We’ll keep looking for such triumphs for Canadians,” Singh added.
Nathalie Sinclair-Desgagne, a Bloc Quebecois MP and public accounts critic, said Thursday that her party was likewise underwhelmed with the paper, claiming it didn’t give much new. The Bloc Quebecois has yet to indicate if it would support the measure as a result of this amendment.