The federal government’s fall economic statement presented by Deputy Prime Minister and Finance Minister Chrystia Freeland last week included 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.

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, as well as rolling out anticipated green investment tax credits.

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.

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.

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.

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.

Review of the Deficit

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 last week 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, 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.

Reaction to the Economic Statement

NDP Leader Jagmeet Singh commented that 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 last 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 (CM&E) 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.”

To see further comments from the CM&E (which CHPTA is a member of), click here.

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