BLUESKY BRIEF - Freeland's Fall Fiscal Update

It was an historic day as Finance Minister Chrystia Freeland delivered her first economic statement in the House of Commons. What stood out immediately was the tone of the speech, when Freeland said that Canadians will be heading into “what we all know will be a difficult winter … but spring will follow winter. The seeds we have planted will bring new growth." In other words, there will be a balance between the spending that is happening now and the spending that will happen later.

The big headline from today’s economic update is that Canada will continue to borrow and run a deficit of up to $398.7 billion in 2020-21. This is Canada’s largest budget shortfall since the Second World War and our debt-to-GDP ratio will hit 50.7 percent.

Here are some of the other measures outlined by the Finance Minister:

  • $100B in spending over the next three years;

  • $25.B in new spending to deal with the pandemic in 2020-21;

  • $1B to develop Safe Long Term Care Fund and commitment to national care standards with the provinces;

  • Imposing GST/HST on all goods and services by foreign digital companies, effective July 1st, 2021;

  • Removing the GST/HST on face masks and shields on December 7, 2020.

From the desk of the Honourable Andrew Leslie, Senior Associate

There is little doubt that in the fiscal response to the initial’s stages of the COVID pandemic, the Trudeau government has done a good job of pushing money out the door to help Canadians reeling from the health, social and economic impacts. The front-line fight was left to the provinces and territories to manage, as they requested. Under the leadership of then Finance Minister Bill Morneau, the federal government focused on borrowing hundreds of billions of dollars that were quickly distributed to individuals and companies in a series of progressive programs, with commendable feedback and input from Morneau’s wide range of business contacts. The cost of borrowing these massive sums is currently quite low, and we all hope that the Liberals’ absolute confidence that rates will remain low for the foreseeable future is well-placed.

Flash forward to today with Winter coming, unemployment growing, the tragic second wave well underway, a Federal deficit that may be close to $400 billion, and a Federal economic update fresh off the printer. The heartening news is that about $100 billion in new spending was identified for restarting the economy once the vaccines kick in, with a variety of new and interesting programs covering a broad spectrum of business and industry groups that need considerable help and attention. There are certain to be significant new opportunities for additional federal funding in high-tech, green tech, innovation, infrastructure, natural resources, agriculture, education, Indigenous peoples and other areas.

The interesting news is that without missing a beat, Minister Freeland then spent most of her energy essentially repeated what sounded like electoral platform aspirations of wonderful ideas for new social programs, linking their significant new funding within the context and impact of COVID19. These social enhancements are certain to be extraordinarily appealing to potential voters, and it will be hard to argue against any of them - unless you must pay for them. It also looks like the largest corporations and larger investors will pay more than before, further details to follow.

Though in many ways laudable as to ambition, Minister Freeland’s update is certainly in no way linked to any idea of austerity, or of how to repay that which will be spent in the short and mid-term.

From the desk of Neil Brodie, Vice President

Conservatives are saying that the economy is on hold until testing and vaccines are widespread. These are the tools in the fight against the coronavirus that are required to allow the country to get back to normal. The National Basketball Association received authorization for rapid testing in mid-August, rapid tests weren’t approved by Health Canada until mid-November. The government hasn’t given any straight answers on when vaccines will be readily available in Canada. It is these tools, requiring Health Canada approval, that will get the country back to normal and the economy rolling again. Today, Conservatives were looking for a fiscal update that included a plan for health tool approvals and they didn’t get it.

The Conservatives were also asking for an indication of a fiscal anchor that the public can use to judge when the government will slow down spending. There was no fiscal anchor today, only fiscal guardrails. Spending will be wound down based on several related indicators. The finance minister announced the fiscal guardrails are the employment rate, total hours worked and the level of unemployment in the economy. Once these numbers return to more normal levels spend plans will turn from support and stimulus to deficit reduction.

The forecast deficit this year is $381 billion, in a best-case scenario, followed by $121 billion next year. Reports are that only about half that number is going to direct support of individuals. An example of the questions around the stewardship of the spending is the additional money apportioned to the long-term care sector. Setting aside $1 billion for long-term care sounds tone-deaf when Canadians know that long-term care facilities are hardest hit by COVID-19 and total spending is close to $400 billion. However, in this corner, the government message of ”doing whatever it takes to help Canadians through this crisis” is the way to go. Unfortunately, no instruction book can be taken off the shelf to deal with the coronavirus pandemic and money is one of the few ways governments can insert themselves into the solutions column.

From the desk of Cameron Holmstrom, Consultant

Today is November 30th but you could be forgiven if you thought that today was February 2nd, because this fiscal update felt a lot like Groundhog Day. If you were looking for larger, transformational policies like a national childcare program, you got more studies instead. If you were looking for many new measures to deal with the fall out from COVID-19, you heard more about promises this government had already made. If you were looking for big vision and planning, this update wasn’t for you.

That doesn’t mean that it was a bad document, as it spoke to the immediate needs faced by many Canadians. We saw more help for businesses through an increase in the wage subsidy and more low-interest, government-backed loans. We saw specific help for sectors that have been hardest hit by lockdown measures, like travel, tourism and the cultural sector. And we saw more money to help purchase PPE and support communities in their fight against COVID. Those are all laudable measures and deserve credit.

But with so few new ideas or announcements in this document, it felt like the government was holding onto potentially big programs and funds for an election platform to run on. With a debt-to-GDP ratio now sitting at 50.7%, one has to wonder if we’ll see those larger, transformational promises when that election comes. That raises questions of its own, but today is not the day to worry about that. Today is about dealing with what is right in front of us. In that way, this fiscal update is reasonable if unspectacular. We’ll see in the months to come if it meets the needs of Canadians or not.

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