The federal government unveils its long-awaited fall economic statement today — putting to rest weeks of speculation about a higher-than-projected deficit and the potential failure of other fiscal “anchors” Ottawa claimed would keep its budget on track.
Just last spring, in her Budget 2024 speech, Finance Minister and Deputy Prime Minister Chrystia Freeland laid out three “fiscal guideposts” she said would demonstrate the government’s continuing commitment to fiscal responsibility. The first was a promise to keep the 2023-24 deficit at or below $40.1 billion.
Last week, Freeland would no longer commit to meeting that target.
“I chose my words with care, because it is important to be clear with Canadians. It is important to be clear with capital markets,” she said at the time.
The Globe and Mail reported recently that the government has sold its remaining Air Canada shares and that the profit it made could help it keep the deficit in check. Still, most experts seem to believe the federal government will miss its deficit target.
WATCH: Freeland talks deficit, debt-to-GDP ratio
Jock Finlayson, a senior fellow at the Fraser Institute and chief economist for the Independent Contractors and Business Association, said he expects a revised deficit $10 to $15 billion higher than the one projected last spring.
“We’ve seen a serial slippage in meeting budget targets ever since the worst of the Covid crisis passed,” he said.
Another government promise — to keep deficits below one per cent of GDP in 2026-27 and in future years — is also up in the air in the wake of more recent big-ticket federal spending commitments to child care, dental care and pharmacare.
But a senior government official insists the only fiscal guardrail that really matters is a declining debt-to-GDP ratio, which Freeland also promised last spring to maintain. A declining ratio means the federal debt, as a share of the size of the economy itself, continues to go down.
“The other guardrails are important, but that’s the one,” said the official, who spoke on condition of anonymity because they were not authorized to speak publicly about the update.
Last week, the finance minister said she still expects to meet the 42.1 per cent debt-to-GDP ratio projected for the 2023-24 fiscal year.
“You can’t pick and choose fiscal anchors as you go, and renege on a commitment you made only a year ago,” said Robert Asselin, senior vice president at the Business Council of Canada.
“The fact of the matter is this government is losing control of public finances and Canadians are noticing.”
Today’s fiscal update comes as trouble looms for Canada’s most important trading relationship. U.S. president-elect Donald Trump has threatened to impose a 25 per cent tariff on imports from Canada and Mexico that could cripple the economy.
That threat has Canada and the provinces and territories scrambling to put into place measures — potentially costly ones — to address Trump’s stated concerns about border security, migrants and illegal drugs.
The senior government official cautioned that the fiscal update will not be a direct reply to Trump’s threat.
Prime Minister Justin Trudeau dined with U.S. president-elect Donald Trump in Florida late last month. On Trudeau’s left is Howard Lutnick, Trump’s nominee for commerce secretary. (@DaveMcCormickPA/X)
“To focus on tariffs is to focus too narrowly,” the source said, adding the government believes Trump’s ultimate goal is to get companies to move to the U.S., or to at least move their investments there.
“He wants capital to go into the U.S. We have to get our ducks in a row, be robustly ready to fight capital being sucked into the U.S. … to boost economic growth and keep capital here.”
Finlayson said he wishes the federal government was more worried about what he calls a “complete stagnation of Canadian productivity” and less concerned with surface-level measures like what he calls a “gimmicky” GST holiday.
“We’re painting the porches and planting the flowers out in the garden in front of the nice little house, while the underlying foundations of it are being chewed away by termites,” he said.
Canada’s productivity problem
Finlayson said there are two ways to grow an economy in the long term. One is to increase the number of people in the labour force — something Canada has relied heavily on immigration to achieve. The other way is to boost the value of what is being made by increasing productivity — an area where Finlayson argues Canada is failing.
“Dealing with these big challenges is not politically easy because it doesn’t lead to quick wins. Standing up and talking about productivity is a good way to empty a room of people,” he said.
While the government might say this year’s fiscal update is not a response to Trump’s threats, it could contain measures meant to do exactly that.
While the full details of Ottawa’s promised plan to strengthen border security — which could include new legislation and up to $1 billion in new spending — are not expected to be outlined in the fiscal update, it could offer some hints at a strategy. It also might include language indicating the government’s openness to accelerating its timeline for increasing military spending to two per cent of GDP and meeting the NATO target.
Overall, Canadians should not expect any major U-turns, said the senior government source.
“We have the same focus — housing, affordability and economic growth,” the source said.
Last week, Freeland announced two measures to be included in the update — one which aims to make it easier for homeowners to add secondary suites to their homes, and another to enhance an existing scientific research tax incentive program.
Those hoping that the update will include the promised $250 rebate cheques for working Canadians who earned less than $150,000 in 2023 likely will be disappointed. None of the opposition parties is indicating support for the measure as originally proposed, and the minority Liberal government can’t get the measure passed without the support of at least one other party.
“We need a dance partner and no one wants to work with us on the cheques,” said the government official.
The fall fiscal update is coming late this year — just five days before the end of fall. The government blames the late release on the Conservatives’ ongoing filibuster in the House of Commons over a question of privilege — but critics have accused Freeland of wanting to delay the release of bad economic numbers. Others have suggested Trump’s election threw the finance department off-track.
“Did we rejig because of the Canada-U.S. situation? Yes,” said the government official. “But the lateness was mostly about where and how we could present the economic statement, considering the state of things in the House of Commons right now.”
That deadlock in Parliament puts in doubt the government’s ability to actually follow through on the plans outlined in today’s fiscal update.