Freeland signals an end to the big spend in FES

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.