Officials say Prime Minister Justin Trudeau will be putting a big emphasis on policies that help Canada’s middle class as he prepares to chair a cabinet retreat in Montreal over the next three days.
His governing team kicks off the retreat Sunday night with a working dinner, followed by two full days of meetings preparing for the House of Commons to resume sitting next week.
It is also looking ahead to the next federal budget, expected within the next two months.
With a slowing economy, the government has limited room for major new spending and no shortage of needs, including pressure to increase spending on the military, invest more in Canada’s electricity grid and pay for an influx of asylum seekers.
But also top of mind for Liberals right now are plummeting poll numbers and high anxiety among voters about the inflation, particularly rising grocery bills and housing costs.
Thus the first part of the retreat is set aside for pocketbook policies, with a spate of experts scheduled to speak to the cabinet about affordability, the economy and housing.
Among them will be Frances Donald, the chief economist at Manulife Financial, which warned in its 2024 forecast on Jan. 18 that the economy is starting the year from a position of weakness and uncertainty. Manulife’s expectation is that the worst economic news will be over by mid-year but not without causing at least some short-term pain.
Canadians are slowing their spending and growing nervous about their job security, Manulife warned, and more Canadians will be forced to renew their mortgages this year at rates often two to three times what they were before.
Dominique Lapointe, Manulife’s global macro strategist who penned the forecast, said a lot of economic realities in 2024 will depend on what the Bank of Canada does with interest rates.
The central bank’s aggressive interest rate hikes to counter inflation peaked in July at five per cent, and haven’t been touched since. Economists have predicted the bank will begin to cut that rate down in the spring but sticky inflation numbers — it crept back up to 3.4 per cent in December — have some hedging that bet now.
The first chance to see what the bank will do comes Wednesday, the day after the cabinet retreat ends.
Manulife did predict housing prices will fall, at least in the early part of 2024, as higher mortgage rates slow demand.
But Mike Moffatt, an economics professor and housing expert from Western University, said with Canada’s population still soaring — almost entirely due to immigration — housing supply is falling further behind.
Moffatt said even with the Liberals moving on smart policies like their $4 billion accelerator fund to fund municipal housing developments, and removing the GST from new rental construction, none of the policies fixes anything overnight and the population is still growing faster than housing.
The Canada Mortgage and Housing Corporation said last year Canada is short about 3.5 million homes, and Moffatt said that number is “probably even larger.”
“They are positive moves, but given the scale of the crisis more needs to be done,” he said.
The Canada Mortgage and Housing Corporation reported on Jan. 16 that actual housing starts in 2023 fell seven per cent in cities with a population of at least 10,000 people. However it said there were bright spots in some of the biggest cities, with housing starts up five per cent compared with 2022 in Toronto and 28 per cent in Vancouver. Both cities recorded significant jumps in multi-unit construction starts.
Immigration and its impact on housing will play an outsized role in discussions in Montreal. The government has already been talking about tying student visa approvals to available housing, and is under pressure to expand that to more immigration approvals as well.
Canada is targeting 485,000 newcomers this year
Also popping back into the conversation is the national child care program, a signature policy of Trudeau’s which the Liberals believe has helped women’s participation in the workforce and economy growth.
But there are some provinces turning back to Ottawa looking for additional funding as inflation has raised costs for daycare operators faster than government funding has kept up.
Canada signed child care agreements with every province and territory in 2021 and 2022, with $30 billion in federal funding budgeted over five years. Ottawa transferred funds to the provinces to help them increase funding to child care centres, which in turn could lower fees for parents.
Initially the goal was to cut fees in half by the end of the first year, and eventually lowering them to no more than $10 a day.
The agreements all include some kind of midterm review of the funding model. Ontario, which signed in March 2022, was to get $10.2 billion over five years but its agreement includes a review in year three that allows Ontario to come back to Ottawa for more cash if it has evidence the original deal wasn’t big enough.
Daycares in multiple provinces have warned they may withdraw from the program because their deficits are too big. Others say they need to raise wages even more in order to recruit and retain staff.
