Government releases economic statement today as Freeland faces heavy pressure over deficit
The federal government has finally unveiled its highly anticipated fall economic statement, putting an end to weeks of speculation about a potentially higher-than-projected deficit and the failure of fiscal “anchors” designed to keep the budget on track. Finance Minister and Deputy Prime Minister Chrystia Freeland had outlined three fiscal guideposts in her Budget 2024 speech last spring, including a promise to keep the 2023-24 deficit at or below $40.1 billion. However, last week Freeland hesitated to commit to meeting that target, sparking concerns among experts.
It has been reported that the government has sold its remaining Air Canada shares, which could help offset the deficit. Despite this, most experts believe that the federal government will miss its deficit target. Jock Finlayson, a senior fellow at the Fraser Institute, predicts a revised deficit $10 to $15 billion higher than projected last spring due to continued slippage in meeting budget targets since the peak of the Covid crisis.
Another key government promise was to keep deficits below one per cent of GDP in 2026-27 and beyond, but recent major spending commitments to child care, dental care, and pharmacare have raised doubts about meeting this target. However, a senior government official emphasized that the declining debt-to-GDP ratio is the primary fiscal anchor that matters, with Freeland still expecting to meet the 42.1 per cent ratio projected for the 2023-24 fiscal year.
The fiscal update comes amid growing concerns over Canada’s trading relationship with the U.S., as president-elect Donald Trump has threatened to impose a 25 per cent tariff on imports from Canada and Mexico. While the update is not a direct response to Trump’s threats, the government believes that the ultimate goal is to attract capital to the U.S., prompting Canada to prepare for potential economic challenges.
Despite these external pressures, Canada continues to face internal economic challenges such as a stagnation in productivity growth. Finlayson highlights the need to focus on boosting productivity rather than surface-level measures, given the long-term implications for economic growth.
While the fall fiscal update may not address Trump’s threats directly, it could contain measures to strengthen border security and hints at strategies to address economic concerns. Freeland recently announced measures to support homeowners and enhance scientific research tax incentives, but the promised $250 rebate cheques for working Canadians may not be included due to lack of support from opposition parties.
The delayed release of the fall fiscal update has been attributed to ongoing parliamentary issues, with critics suggesting that Freeland may have wanted to postpone the release of potentially negative economic numbers. However, the government remains committed to its focus on housing, affordability, and economic growth, despite challenges in Parliament.
Overall, the fall fiscal update is expected to provide insight into the government’s economic plans and priorities, while facing uncertainties in a changing economic landscape. It remains to be seen how the government will navigate these challenges and ensure the implementation of its proposed measures.
