2023 Fall Economic Statement Analysis
A Gloomy Fall Statement with Headwinds Ahead
The 2023 Fall Economic Statement (FES) is a guidepost on the path towards the federal government’s spring budget. While the FES is not designed be a political silver-bullet, it is the government’s opportunity to test messages and initiatives, and course-correct in Budget 2024, if required. The government is in a challenging position and knows it must walk a fine line to not draw the ire of detractors, an almost impossible task at this point. Since Budget 2023, the government has been criticized by industry and the opposition for not delivering on lofty policy commitments and for spending irresponsibly. The government’s response in FES 2023 has been to legislate some of the previously promised investment tax credits to get the dollars and logistics ironed out before Christmas. The FES also addresses issues that matter most to the electorate; affordability and the nation’s housing crisis.
The FES also includes updated financials and projects that the government will spend $20.8B more than expected over the next six years.
The Clean Energy Economy
The FES made clear a myriad of investor tax credits (ITCs) and their delivery timelines. Before the end of 2023, government will legislate carbon capture and clean tech ITCs and begin consultation on credits to incentivize hydrogen projects and technology manufacturing, leaving a final window for companies to provide input. Canada’s focus on CCUS and net-zero initiatives is intended to be a long-term economic strategy; nevertheless, Canada is still catching up to U.S. incentives under the IRA.
Housing Essentials
Some previously announced programs to increase housing supply were highlighted in the FES, including touting the success of the Housing Accelerator Fund, launched in March 2023 with an aim of creating at least 100,000 new homes in Canada, though this is unlikely to have a significant short-term impact.
Addressing housing shortages, the FES also announced:
An additional $15 billion in new loan funding, starting in 2025-26, for the Apartment Construction Loan Program.
$1 billion over three years, starting in 2025-26, for the Affordable Housing Fund.
Legislation to establish the Department of Housing, Infrastructure and Communities.
A new Canadian Mortgage Charter, which sets guidance for how financial institutions work with Canadians to provide tailored relief and ensure payments are reasonable for borrowers when they’re up for mortgage renewal.
An intent to crack down on non-compliant short term rentals beginning in 2024, with legislation to come denying income tax deductions for expenses incurred to earn short-term rental income.
The FES gives the government initiatives they can point to when challenged on affordability though the impact of these measures is open to question.
Deficit and Debt
The government projects the deficit in the current fiscal year to come in at $40 billion, just below the figure presented in the spring budget. For 2024-25, the deficit has climbed from the spring budget projection of $35 billion to $38.4 billion.
Public debt charges are $46.5 billion in 2023-24, and set to climb to $60.7 billion in 2028-29. That’ll put debt servicing costs among the most expensive line items in the federal budget.
There is an opportunity for the Conservative Official Opposition to connect federal government spending to the impact it has on the day-to-day lives of Canadians at a time when they are facing 20-year high interest prices and other inflationary pressures. According to a new report from Scotiabank economists, federal and provincial government consumption and pandemic transfers to households account for about 200 basis points of the 475 basis points increase in the Bank of Canada’s policy rate.
Affordability Measures
The government attempted to address affordability with some targeted new policies, including:
Making changes to the Competition Bureau (many contained within Bill C-56) to crack down on predatory pricing, address anti-competitive mergers, and prohibit misleading greenwashing claims.
Exempting professional services rendered by psychotherapists and counselling therapists from the GST/HST.
Getting rid of seat selection fees for children under the age of 14
Addressing predatory bank fees (to be finalized in Budget 2024)
Asking the CRTC to investigate international mobile roaming charges.
Expansion of EI benefits for adoptive parents to 15 weeks.
While these measures may save Canadians a few dollars, they won’t significantly address affordability for low- and medium-income earners, at least not yet. What is more likely is that the government is attempting to hold those announcements (if any) until Budget 2024.
The Big Picture
The FES can be seen as the governing Liberals attempting to regain control of the housing and affordability narrative. The FES seldom attracts public interest, and this will be no exception. Bank of Canada monetary policy, swings in the price of gasoline, and potential pharmacare legislation are more likely to influence the government’s political fate.
The full economic statement can be accessed here. New West will continue to monitor developments on new programs in the coming weeks. Please do not hesitate to reach out should you require more information.