The federal government’s fall economic statement presented by Deputy Prime Minister and Finance Minister Chrystia Freeland on Tuesday includes 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.
As the minority Liberals continue to scale back new spending and try to find billions in savings, Tuesday’s economic check-in on the country’s finances is, as expected, not a major spending package. The more sizeable financial commitments are not set to roll out the door until 2025, the year of the next scheduled federal election.
Continuing to reduce post-pandemic spending, the 2023 fall economic statement outlines $20.8 billion in additional spending over the next six years, beyond what was announced in the 2023 federal budget.
This includes an estimated $15.7 billion in new measures announced Tuesday and will be offset by a projected $2.5 billion in public sector reduction-centric savings, seeing net new spending work out to $13.2 billion, according to finance officials.
And, in an effort to signal ways the Liberals plan to support Canadians without further dipping into their pockets, the 131-page document also includes a series of cost-free policy and legislative pledges, including bringing forward a bill to create a new Department of Housing, Infrastructure and Communities.
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 and grocery competition, as well as rolling out anticipated green investment tax credits.
The fiscal update also builds on the 2023 federal budget pledge to find savings within federal departments and agencies to help pay for key programs such as dental care, by announcing an expansion of those refocusing efforts to see $4.8 billion per year as of 2026-27.
Speaking with reporters inside the lockup in advance of tabling the fiscal document in the House of Commons, Freeland sought to make it clear that while the Canadian economy is slowing, the country is in a position of strength.
She said private sector economists now expect Canada to avoid a potential recession as was forecasted as a possibility this time last year. “The foundation of our fall economic statement is our responsible fiscal plan,” Freeland said. “In the face of global inflation, our government has reduced the deficit faster than any country in the G7.”
‘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.
New homes are constructed in Ottawa on Monday, Aug. 14, 2023. THE CANADIAN PRESS/Sean Kilpatrick
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.
In an interview Tuesday on CTV News Channel’s Power Play, Freeland said she “disagrees” with the early opposition criticism that the new measures announced in the economic outlook won’t help Canadians in the immediate future.
“I think the point is we have been investing in housing since we formed government,” she said. “We have been taking urgent action this fall with really meaty measures.”
GROCERY, CONSUMER AND CLIMATE STEPS
On grocery store check-out pain, the fiscal update doesn’t include any further cost-of-living rebate-type benefits to immediately put money into Canadians’ pockets.
Instead, the government is pledging to continue with its pre-pledged plans to work with grocery giants to stabilize prices, investigate issues such as “shrinkflation,” and establish a “Grocery Task Force.”
Attached to this is a commitment to further amend the Competition Act and related laws to strengthen the Competition Bureau’s powers to go after bad actors and anti-competitive practices across sectors. This pledge simply builds on pre-existing legislation known as Bill C-56 and incoming NDP-led amendments to it. Also under the category of cost-less commitments, Freeland is re-stating vows to go after “hidden junk fees.”
Prime Minister Justin Trudeau pauses to look at items in an aisle during a visit to a Fruiticana grocery store in Surrey, B.C., on Tuesday, November 14, 2023. THE CANADIAN PRESS/Darryl Dyck
The finance minister vowed Tuesday to come back to Canadians in the next budget – after already referencing the ills of these fees in the 2023 federal budget – on steps it is taking to reduce bank fees, while work at the CRTC and Canadian Transportation agency continues on mobile roaming and airline seating charges.
At the same time, the Financial Consumer Agency of Canada will work with banks on improving Canadians’ low-cost and no-cost bank account options reflective of the uptick in account holders making online bill payments and e-transfers.
Tuesday’s economic package also includes a promise to work with Canadian pension funds “to create an environment that encourages and identifies more opportunities for investments in Canada,” including considering removing the “30 per cent rule” that restricts Canadian pension funds from holding more than 30 per cent of corporation voting shares.
And, while touting the suite of green economy measures are already underway, such as the development of battery manufacturing plans while expanding the eligibility for certain clean investment tax credits, Freeland’s fiscal update also outlines the timeline for the government to deliver on its carbon capture, utilization, and storage investment tax credits, vowing legislation imminently and implementation by the end of 2024.
CHECK-IN ON THE DEFICIT, DOWNSIDE
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 Tuesday 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 Monday, 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.
OPPOSITION, MAJOR STAKEHOLDER REACTION
While Freeland’s speech was met with a rousing applause from her Liberal colleagues, the opposition parties and certain stakeholder groups were less enthusiastic about Tuesday’s economic update.
“Mr. Speaker, as we stand here today, and witness the misery that is visible across this country, it’s hard to forget how good things were only eight years ago when this prime minister took office,” said Conservative Leader Pierre Poilievre in his reaction speech in the chamber, going on to offer a laundry list of grievances with this government. “Inflation after hitting 40-year highs is back on the move, the economy is now shrinking, and if you add in per capita terms, it is plummeting.”
Conservative Leader Pierre Poilievre responds after Minister of Finance Chrystia Freeland delivered the 2023 Fall Economic Statement in the House of Commons, Tuesday, November 21, 2023 in Ottawa. THE CANADIAN PRESS/Adrian Wyld
NDP Leader Jagmeet Singh told CTV’s Power Play host Vassy Kapelos 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 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 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.”
Some drivers who bought their vehicle within the past couple of years when auto prices were hovering around record highs are now facing the reality that they’re underwater with their car loans.
“We saw some rare (price) appreciation during the time that consumers were purchasing these high-priced cars,” Daniel Ross of Canadian Black Book said of the auto market during the pandemic years.
Global supply chain disruptions stemming from the pandemic left the auto market with low inventory — and coupled with high consumer demand — auto prices surged, Ross said.
Some of those issues have since begun to normalize, allowing prices to ease, but it’s left some consumers owing more on their auto loan than the car is now currently worth. It’s referred to as negative equity, or being underwater.
As with the vast majority of vehicles, they’re a depreciating asset, so for those who purchased their car when prices were high, their “vehicle will continue to lose lots of value because it was probably overpriced at that time,” Ross said.
On average, people who were underwater saw the negative equity in their cars climb to a record high of US$6,255 in the second quarter this year, compared with US$4,487 in the second quarter of 2022, a July report from auto retail platform Edmunds showed.
Trade-ins with negative equity also jumped, Edmunds said in its report.
“If you’re in a negative equity position, it’s not easy to get out of that,” Ross said.
For drivers who are in this situation, it’s better to drive that car into the ground and just keep paying off the loan, he said.
“It’s wisest to work with the devil, so to speak, as opposed to getting into something else — a new scenario,” such as trading in or buying a new vehicle.
Halifax-based financial planner and Aergo Financial Planning founder Ben Mayhewsaid negativeequityis usually resolved when left to itself.
When a driver stays the course — keeps the car and pays down the loan — the value of the loan will cross the car’s value and balance out at some point, Mayhew said.
But if a driver must get out of the negative equity situation, Mayhew suggested refinancing the loan at a lower rate. Many people got into higher interest rate loans during the big supply crunch and rising interest rates, he said.
“It will be beneficial to both refinance to a lower rate as well as to a shorter term … to reduce that financial strain,” Mayhew said.
Delinquencies were rising in the second quarter of 2024 for both non-bank and bank loans, an Equifax report showed. Missed payments on bank loans for vehicles were at their highest since 2019 while the 90-day balance delinquency rate for non-bank loans was up 26.8 per cent from a year ago.
If refinancing is off the table, car owners could look into paying down the loan faster and narrowing the loan-to-equity gap, though Mayhew said that can be challenging as many people are also contending with the high cost of living.
Although not ideal, Mayhew said drivers can consider trading in their vehicles with negative equity for another car and roll the current debt into the new loan.
“The thing to be careful about is that we don’t want to have a perpetual cycle,” Mayhew warned. He added the payment plan of the new vehicle shouldn’t only be based on what the driver can afford.
Instead, a driver should be aware of the price of the car, the negative equity that’s getting rolled into it and how that’s going to look — not just today but over the life of the loan and the vehicle, Mayhew said. He suggested going for older vehicles that have already passed the steep depreciation curve.
“Being underwater on a new car when driving off the lot is definitely a tough spot to be in,” he said.
It’s better to buy a new car with as big of a down payment as possible to avoid piling interest costs on a depreciating asset — and save the rolling negative equity trouble.
Mohamed Bouchama, a consultant with non-profit Car Help Canada, suggests not falling for tempting leasing and financing advertisements to avoid the risk of being underwater.
“If you can’t afford it, don’t buy it, buy something cheaper,” he said.
Bouchama said the golden rule to avoid negative equity is to not go over a five-year term for financing, or a three- or four-year term for leasing, and to budget with other related costs in mind, such as gas, insurance and maintenance.
“When you buy a car, make sure you can afford it,” he said.
This report by The Canadian Press was first published Sept. 24, 2024.
TORONTO – Strength in the energy and base metal stocks lifted Canada’s main stock index higher in late-morning trading, while U.S. stock markets also climbed higher.
The S&P/TSX composite index was up 78.80 points at 23,973.51.
In New York, the Dow Jones industrial average was up 89.81 points at 42,214.46. The S&P 500 index was up 2.55 points at 5,721.12, while the Nasdaq composite was up 21.24 points at 17,995.51.
The Canadian dollar traded for 74.24 cents US compared with 74.02 cents US on Monday.
The November crude oil contract was up US$1.06 at US$71.43 per barrel and the November natural gas contract was down two cents at US$2.83 per mmBTU.
The December gold contract was up US$18.10 at US$2,670.60 an ounce and the December copper contract was up 15 cents at US$4.49 a pound.
This report by The Canadian Press was first published Sept. 24, 2024.
TORONTO – Canada’s main stock index edged lower in late-morning trading, weighed down by losses in the financial and telecommunications sectors, while U.S. stock markets rose.
The S&P/TSX composite index was down 7.26 points at 23,860.11.
In New York, the Dow Jones industrial average was up 61.00 points at 42,124.36. The S&P 500 index was up 15.70 points at 5,718.25, while the Nasdaq composite was up 27.88 points at 17,976.20.
The Canadian dollar traded for 74.10 cents US compared with 73.72 cents US on Friday.
The November crude oil contract was down eight cents at US$70.92 per barrel and the November natural gas contract was up 12 cents at US$2.84 per mmBTU.
The December gold contract was up US$4.90 at US$2,651.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Sept. 23, 2024.
New homes are constructed in Ottawa on Monday, Aug. 14, 2023. THE CANADIAN PRESS/Sean Kilpatrick
Prime Minister Justin Trudeau pauses to look at items in an aisle during a visit to a Fruiticana grocery store in Surrey, B.C., on Tuesday, November 14, 2023. THE CANADIAN PRESS/Darryl Dyck
Conservative Leader Pierre Poilievre responds after Minister of Finance Chrystia Freeland delivered the 2023 Fall Economic Statement in the House of Commons, Tuesday, November 21, 2023 in Ottawa. THE CANADIAN PRESS/Adrian Wyld
