The Liberals’ fall economic statement on Monday will show a higher-than-promised budget deficit and provide details on how the government will deal with the threat of U.S. tariffs ahead of President Donald Trump’s inauguration in the new year. It is expected that
Government officials said the fiscal update will include measures to encourage business investment in Canada.
The sources were not authorized to discuss the matter publicly, but the government is wondering how to retain and attract capital to Canada in the face of an incoming U.S. administration with an “America First” policy. He said he is focusing on.
On Friday, Treasury Secretary Chrystia Freeland said that with President Trump in office, the United States has an open strategy to create economic uncertainty in other countries in order to discourage investment “in places other than the United States.” said.
He said there is a global fight over investment and the jobs it brings, and Canada needs to fight aggressively for capital.
“We need to get to the podium and make the case that Canada is a great place to invest,” he said, pledging to expand on those comments in his fall economic presentation.
He has already said Monday’s statement will include tax reform for a program aimed at encouraging corporate research and development in Canada. The government estimates that the reforms will result in $26 billion in tax benefits for Canadian businesses.
Last month, President Trump threatened to impose a 25% import tariff on all goods coming from Canada and Mexico unless they stop the flow of immigrants and illegal drugs into the United States.
Since then, the government has scrambled to respond to the threat, with Prime Minister Justin Trudeau presenting some details of the plan to premiers during their first virtual cabinet meeting last week.
Some of these details will be made public on Monday.
A year ago, Mr. Freeland announced a series of fiscal guardrails in response to pressure from the Bank of Canada and economists to avoid fueling inflation through excessive spending.
The plan includes limiting the fiscal deficit to $40.1 billion in 2023-24 and continuing to reduce the debt-to-GDP ratio. Forecasters already believe the government has exceeded the deficit limit, with Congressional budget officials projecting the deficit will be $46.8 billion.
Freeland told reporters on Dec. 10 that he expects to stick to his debt-to-GDP ratio promise in his fall economic announcement, but declined to answer questions about whether he would also meet his deficit target.
“I chose my words carefully because it’s important to be clear to Canadians. It’s important to be clear to the capital markets,” he said.
Mr Freeland’s non-commitment comes amid growing tensions within the Liberal caucus and cabinet over how to turn things around politically before the next federal election.
Addressing Canadians’ continued frustration with economic uncertainty and the cost of living will be key, but a two-month GST holiday on certain items that began Saturday has so far been backed by the Liberals in opinion polls. It does nothing to move it.
The Liberals also promised to send a $250 rebate this spring to working Canadians who earned less than $150,000 last year. But the future of that promise remains uncertain as the Liberals struggle to get opposition parties on board with the proposal.
The GST break targets goods and services that people prioritize for Christmas, including toys, children’s clothing, restaurant meals and some alcohol, and is estimated to cost at least $1.6 billion.
The $250 rebate would cost about $4.7 billion, as originally planned.
Randall Bartlett said: “At a time when there are huge challenges ahead as a result of the U.S. presidential election, it would be unwise to spend on anything that would create a short-term sugar rush.” Senior Director of Canadian Economics at Desjardins.
Tyler Meredith, Freeland’s former head of economic strategy and planning, said missing fiscal targets is not a problem when comparing Canada’s finances to its peers. But he acknowledged that it would lead to credibility issues for the government.
“If you set certain expectations and they aren’t met, even if it’s for extenuating circumstances, you have credibility issues in the long run,” he said.
Bank of Canada Governor Tiff Macklem said she is “supportive of fiscal guardrails” when asked about the government’s apparent pivot from its pledges.
“We will look at the financial updates as a whole and make an assessment,” he said.
William Robson, president and CEO of the CD Howe Institute, said the debt-to-GDP ratio is not a “serious goal.”
“If they were serious, they would have a truck showing how they would balance the budget,” Robson said.
The government has already announced several measures, which will be included in the autumn economic report.
Freeland announced Friday that the government will remove a cap that currently restricts Canadian pension funds from owning more than 30 per cent of the voting shares of Canadian companies.
Ottawa is introducing other measures, including launching the fourth round of the Venture Capital Catalyst Initiative, which could raise $1 billion in funding over 2025-26. He said the round will include terms that are more attractive to pension funds and other institutional investors.
The federal government will also provide up to $1 billion in total for investments in medium-sized growth companies, and will make available up to $45 billion in total loans and equity investments for certain AI data center projects.
On housing, the fall economic statement is expected to propose doubling the loan limit from $40,000 to $80,000 for homeowners who want to add a second suite to their home.
The program, which begins January 15, offers 15-year financing terms at 2% interest.
This report by The Canadian Press was first published Dec. 15, 2024.
