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Freeland signals an end to the big spend in FES

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Today, Finance Minister Chrystia Freeland presented the Government of Canada’s 2023 Fall Economic Statement (FES) in the House of Commons. The update focused on mortgage affordability and increasing rental housing with $15.7B in new spending and projects a deficit of $40B in 2023-2024. The NDP committed to supporting the FES, ensuring confidence in the government and avoiding an election, at least for 2023.

You can read the full Fall Economic Statement here.

What it means

Minister Freeland faced a dual challenge drafting her Fall Economic Statement – trying to satisfy calls to spend more on housing and other priorities while heeding calls to avoid doing so much that she fuels inflation, increases the country’s debt-to-GDP ratio, and makes it harder for the Bank of Canada to lower interest rates.

It’s a delicate balance and explains why the department called this FES an update rather than a mini budget. Freeland’s focus is less on new programs than continuing previously announced measures, including the recent mandate to reduce costs.

The update confirms what most private sector forecasters have been saying. Economic growth will be less robust this fiscal year than previously thought. That means lower government revenues and less room to spend. Those hoping the federal government had a plan to return to balanced budgets will be disappointed. There’s no reading between the lines here. The bottom line is still written in red and will be for the foreseeable future.

What the statement emphasizes

The emphasis is on increasing the supply of housing, subsidies to support carbon capture and energy projects that won’t increase Canada’s carbon footprint, and initiatives to make life more affordable for Canadians struggling with the rising cost of living.
None of this made the Conservative Party happy. New Democrats took credit for the emphasis on affordability and signaled they will vote with the Liberals to approve it.

But the real test of whether the government struck the right balance will come when Freeland tables her next budget. This financial blueprint is as much about politics as fiscal policy, especially for a minority government that depends on the NDP to stay in power.

The big picture – new political direction on housing

Unsurprisingly, housing emerges as the winner in today’s FES, “bringing home” most of the pie and leaving a single slice behind for the remaining government priorities to share. The Liberals not only recognize the challenges Canadians face as the housing crisis deepens, but with an election creeping up and polls slipping down, the Liberals are going back to their original mantra of “real change” in designing their housing plan.

Bureaucrats take the keys

For the past few months, the Ministry of Infrastructure has been taking control over housing programs normally under the Canada Mortgage and Housing Corporation (CMHC) – an independent crown corporation with its own mortgage business line. A soft overhaul of federal housing policy has now officially taken a sharp turn, with the move to establish a new Department of Housing, Infrastructure and Communities.

Why it matters: For the first time in decades, a federal department will control housing policy. The government intends to draft the blueprints for funding priorities all the way to the next election. Expect more direction on projects, and more political influence to support Liberal MPs after years of frustrated expectations. The government’s message is clear – if the Liberals are to be blamed for housing failures, they’re going to play a bigger role solving the problem.

Big moves on rental

The Liberals are building on previous programs and lessons learned since forming government. The rental plan is focused on three initiatives – 1) create more purpose-built rentals by revamping and replenishing current loans programs with a substantial $15 billion boost (the largest expenditure of the day), 2) include new co-op rental housing under the GST exemption for rental construction, and 3) invest new and unused dollars meant for low-income renters to create even more affordable social/co-op housing opportunities instead.

Why it matters: With a new department focused on housing and infrastructure, new money on the line, and funds redirected from existing programs to boost the supply of affordable builds, the government is showing it’s serious about the purpose-built rental market. Most of today’s measures flow from the National Housing Accord, developed by industry partners, which helped lead to these groundbreaking results. The government has signaled that additional measures are to be announced in the weeks ahead.

Homeowners not left behind

The statement responds to criticism that the government lost sight of the challenges faced by homeowners with its focus on renters over the past few months. That’s why a significant number of measures announced today should provide Canadian homeowners with more options when renewing their mortgages. From longer amortization periods being permitted to fees and interest rates being waived for some of the relief measures, the new rules are intended to strike a balance. This includes the ability to make lump sum payments to reduce a mortgage before selling, or to refinance, if a homeowner finds themselves under water.

Why it matters: While the government is relaxing mortgage regulations by giving the banks room to help Canadians, the measures won’t automatically lower interest rates. That goal is spoken to most forcefully in today’s announcement by not giving in to the big spend.

The rest of the picture – affordability & clean growth

With little spending left after housing, the following are notable additions in the FES:

  • Increasing competition: Amendments to the Competition Act to crack down on anti-competitive behaviour, offer broader choices for consumers and stabilize prices.
  • Protecting consumers: Legislation to target “junk fees” Canadians pay in the form of unnecessary and hidden charges. The Financial Consumer Agency of Canada (FCAC) will be directed to work with banks to improve low- and no-cost accounts, such as increasing the number of debit transactions, online bill payments, and e-transfers with no extra fees. The agency will also work to expand the availability of low- and no cost accounts.
  • Grocery affordability: No new measures to control rising grocery prices but reiterates the commitment to address grocery affordability and highlights measures announced earlier this fall. It restates the government’s willingness to use tax measures to ensure retailers stabilize prices.
  • Enhancing health and dental care: Lifts GST/HST on counselling and psychotherapy services and teases the launch of the Canadian Dental Care Plan, expected to begin rolling out by the end of the year. Also includes a timetable for the bilateral health transfers announced in Budget 2023, giving provinces and territories until March 31, 2024, to sign agreements to access funding for 2023/2024.
  • Clean economy: Updated timelines to deliver all clean economy investment tax credits in 2024, including carbon capture, utilization and storage. A reminder on green initiatives already underway, such as battery manufacturing plans and the timeline for the roll-out of investment tax credits.

Opposition reaction

Conservative Party of Canada: “Trudeau spends. Canadians pay.”

  • Pierre Poilievre stuck to the script that has put him in front of the polls. He went after the new housing department as government building bureaucracy faster than new homes and argued that the government will be spending more on debt than healthcare.

New Democratic Party: “It does not meet the urgency of what Canadians are going through.”

  • Jagmeet Singh called this mini budget a ‘micro budget,’ took credit for the new investments in housing and steps taken to tackle the cost of groceries and yet promised to continue to support the government.

What’s next

To deliver on the commitments from the Fall Economic Statement, expect legislation to be tabled before the end of 2023, including part two of the Budget 2023 Implementation Act.

Your Navigator team will be monitoring the roll-out of today’s statement closely and is available to assist in advancing your priorities with the government.

The most consequential lieutenant-governor in Ontario’s history

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If you want to understand who she is, just ask.

Ask people in every corner of this province, parliamentarians of every stripe, leaders of every description. From Thunder Bay to the Eastern Townships, just ask. And they all will tell you this: Elizabeth Dowdeswell is not only the very personification of public service but that, by the force and endurance of that service, she has made Ontario a better place.

Long before Elizabeth Dowdeswell was lieutenant-governor of this province, she was, at her very essence, a public servant. She started her career as a teacher. Served in the Saskatchewan and federal public services. Was the under-secretary-general of the UN and executive director of the UN Environment Programme. Appointed CEO of numerous domestic and international organizations of importance. Worked in Stockholm and Swift Current, New York and Nairobi.

And so, when she was appointed to this new role, those who knew her knew she would bring a truly sui generis tool box with her. What we could not have imagined was just what she would build with it: an unparalleled legacy of leadership.

Legacies like hers don’t merely reinforce and uphold institutions. At their most powerful, they convince even the skeptics of the institution’s value.

When it comes to the Crown in this country, I have, over years, become skeptical. This past April, I wrote that the time had come for Canada to cast off the monarchy. But there’s an old saying: the greater the doubt, the greater the awakening. And, in this case, my doubts about the institution have only intensified my admiration for the woman who represented it for nearly a decade. Who understood her role was not about pomp or ceremony, but rather about people. About honouring our everyday heroes whose selfless and quiet work reinforce our social fabric. About giving a platform for those who feel voiceless, who feel that no one is listening. About the acts of empathy and kindness that not only transcend the trappings of an antique institution but, more significantly, of politics itself.

From all that Elizabeth Dowdeswell has achieved for the people of Ontario, from all that she has built, I’m left with this thought: if the monarchy is to be anything in this next era of Canadian life, it will be about the kind of things that are the exact opposite of the assumptions it attracts: elitist, ineffectual, ancient history.

If it is to survive it will be about the humility and service our late Queen exemplified.

It will be about how each one of us can achieve extraordinary things for our community.

It will be about the days ahead and how we can make those days better for all those who will come after us.

If it is to survive, it will be embodied by people like Elizabeth Dowdeswell. It will be about the ideals she encouraged us never to give up on.

Emerson said that, in life, our chief want is for someone who will make us do what we can. The observation is true in the individual sense, but it’s even more true, even more powerful, in the communal. To believe these words is to believe in the potential we collectively hold. Through all her efforts, Dowdeswell demonstrated that belief. That we can see past our differences, support one another and solve our greatest challenges.

On Tuesday, the guns will sound across Queen’s Park and her tenure will officially draw to a close. “The longest-serving lieutenant-governor in Ontario’s history.” That’s what most headlines will say. But those headlines will miss the real story: that Elizabeth Dowdeswell was Ontario’s most consequentiallieutenant-governor.

Just ask.

Spend Money, Make Money?

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This afternoon, the Ontario government tabled its 2023 fall economic statement titled “The 2023 Ontario Economic Outlook and Fiscal Review: Building a Strong Ontario Together.” Below, you will find a summary of the key points from the statement.

Need to Know

  • The Ontario government is propping up an all-new $3 billion Ontario infrastructure bank, targeted at housing, long-term care facilities, energy, housing, municipal infrastructure and transportation projects.
  • Affordability is front and centre with the extension of the government’s 10-cents-a-litre gas tax cut until June 2024 and taking the provincial portion of the HST off of purpose-built rental housing projects.
  • Inflationary pressures, high interest rates and geopolitical unrest has led to Ontario reporting a deficit of $5.6 billion for 2023-24, four times the $1.3 billion it projected in its March budget earlier this year, delaying a balanced budget to 2026.

Why It Matters

  • The channel changer: The PCs hope the splash of a new infrastructure bank will not just be a distraction from Greenbelt politics, but reunite public opinion around the urgency of getting housing built.
    • Ontario is learning from the pitfalls of its federal cousin and giving its new bank a clear, independent mandate to get needed housing and infrastructure built with the help of Canada’s top pension funds and other leading institutional players, who are conveniently located on their doorstep.
  • The big picture: With the proposed bank and more money for Invest Ontario and a flow-through share tax credit, the PCs continue to signal that Ontario is “open for business” and ready to support the $26 billion in new investments in its EV and battery sector.
  • The stretch goal: The government is temporarily abandoning the path to a balanced budget and their fiscally conservative principles with Ontarians reporting cost of living as their top issue and struggling to pay higher interest on mortgages.

What’s new

Ontario Infrastructure Bank

The provincial government is setting up a new arms-length $3 billion infrastructure bank to attract private money from institutions, such as pension and insurance funds. Going into large projects with these institutional investors reduces the risk of these projects and helps attract more private capital.

Zoom in: The bank’s initial focus will be primarily on housing, but also on long-term care, energy and transit. The government has also said the bank would help enable more Indigenous-sponsored projects.

Zoom out: Several other jurisdictions have used infrastructure banks to sponsor large infrastructure projects, including California, UK, Australia and Germany.

The bottom line: With differing opinions on the success of the Canada Infrastructure Bank, it will be up to the provincial government to demonstrate results – and more importantly – value for money.

What’s next: In the near future, we can expect the province to unveil the bank’s governance structure, including its interim chair board and leadership team.

Honourable Mentions

  • Allocating an additional $100 million for Invest Ontario, the province’s investment attraction agency, to support businesses and attract jobs in the province.
    • The agency is focused on attracting investments in advanced manufacturing, life sciences, and technology.
  • Enhancing the Ontario Focused Flow-Through Share Tax Credit to serve as a stimulus for critical minerals exploration.
  • Implementing a Target Benefit Framework that will serve to regulate retirement plans primarily seen in the skilled trades sector.
  • Introducing legislative changes to strengthen the province’s litigation when it comes to holding international pharmaceutical companies accountable for the opioid crisis.
  • Introducing a $200 million Housing-Enabling Water Systems Fund (over three years) to support municipalities, prevent flooding, and enable housing development.
  • Matching the federal government with a legislative (or excise) vaping tax to promote better health outcomes.
  • Enacting certain capital markets reforms through legislative changes to the Securities Act and Commodity Futures Act.
  • Previewing that the results of the ongoing tax reform consultations will be shared as part of Budget 2024.

By the numbers

  • The new deficit projection for 2023-24 is now $5.6 billion, $5.3 billion next year, and a “modest surplus” is expected to be reported in 2026.
  • Interestingly, the government added a top-up of $2.5 billion to the contingency fund, in addition to the $1 billion reserve fund.
  • The government is investing a total of $185 billion over 10 years in its capital plan to build more hospitals, schools, transit, highways and long-term care homes. There are no additions or changes to the capital plan since the March budget.

ICYMI

As a reminder, the government announced the “big ticket” items from FES earlier this week, including:

  • Extending the gas tax cut until the end of June 2024.
  • Axing the province’s cut of HST (harmonized sales tax) on purpose-built rentals to incentivize housing construction.
  • Expanding breast cancer screenings to women 40+ starting in Fall 2024.

Next Steps

  • Budget consultations: The Finance Minister starts trekking across the province next week for budget consultations.
    • With the Fall Economic Statement unveiled, the province will quickly turn its attention to preparing the 2024 Budget, which means pre-budget consultations are right around the corner.
    • While more details on formal consultations will be released in the coming weeks, stakeholders can already start sending their ideas to submissions@ontario.ca to be considered.
  • FES legislation: The government will be working to get the FES bill and other key pieces of legislation on the docket this fall passed before the winter break hits in early December.

Stay Tuned

Our team will keep our eyes peeled on the FES legislation and the new Ontario Infrastructure Bank.

If you have any questions about today’s announcements, please reach out our team of political veterans at info@navltd.com.

Federal Budget 2023

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A (Too?) Timid Response to Challenging Times

Budget 2023 notionally delivers the response that had been expected of the government to address affordability issues facing Canadian families, reflects recent intergovernmental agreements on health care funding, and addresses the US administration’s “green industrial policy” investments. In actuality, the budget seems too timid a response to too many disparate policy and political imperatives to make a meaningful impact on any single one of them.

From a political perspective, the suite of measures aimed at addressing the rising cost of living is understandable. Exclusive public opinion data collected by Discover by Navigator in the days leading up to today’s budget confirm that addressing cost of living issues was the top priority of Canadians at 39 per cent, beating out lowering taxes (21 per cent) and reducing government spending (20 per cent). These measures will also serve to buttress the deal negotiated a year ago with the New Democratic Party, notably the additional investments in dental care – a long-standing NDP priority.

Like Budget 2022, which was shaped by rising inflation and Russia’s invasion of Ukraine, Budget 2023 is more a response to outside pressures than the expression of the Government of Canada’s desired policy direction. The question is whether the measures announced today will constitute a robust enough response to the Biden Administration’s Inflation Reduction Act, the demands of our increasingly strained health care system or the still-too-heavy burden of the rising cost of living on family budgets to make a meaningful; difference. Only time will tell, which may, in the end, be the one thing the government was playing for in designing this budget.

You can download our budget analysis here.

For more analysis, or support engaging government on any of the budget announcements, contact your Navigator team or reach out at info@navltd.com. 

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