Finance Minister Chrystia Freeland delivered the Liberal government's first major fiscal update since September's federal election, amid concerns about inflation and continuing uncertainty over COVID-19 and the Omicron variant.
Infection, Inflation, and the Economic Recovery
Controlling the COVID-19 pandemic remains "priority number one” for the government," according to last month's speech from the throne, which occurred as Delta variant cases continued to rise but preceded detection of the Omicron variant in Canada.
The speech from the throne also pledged investment in child care and housing would drive the effort to address inflation and the cost of living, which have since figured large in question period and parliamentary debate.
Canada's employment numbers rose 154,000 in November, with the unemployment rate falling to 6% -- within 0.3% of the pre-pandemic level in February 2020.
But the inflation rate reached 4.7% in October -- the biggest year-over-year increase since 2003.
The Bank of Canada projects overall 3.4% inflation next year, thanks to continuing supply bottlenecks, increasing demand, and higher energy prices. But a return to the two-per-cent level is expected by mid-year.
That means the central bank has maintained its key interest-rate target at the historic low of 0.25% since March 2020, but higher rates are expected in 2022.
The Conservatives have accused the government of overspending and cultivating "runaway" inflation that has raised prices for Canadian families.
NDP Leader Jagmeet Singh wants housing affordability at the center of federal efforts to address the cost of living, with immediate implementation of new taxes to curb speculation and "massive" investment in new affordable homes.
Singh also cited the cost of Internet and mobile phone services.
"The fiscal update should be an opportunity to tackle the cost of living & inflation, and that's what we're pushing for," says NDP Leader Jagmeet Singh as he outlines affordability measures his party wants to see included in the government's upcoming economic statement.#cdnpoli pic.twitter.com/ltro5cjL5s
— CPAC (@CPAC_TV) December 7, 2021
Earlier this year the Bank of Canada slightly downgraded its 2022 growth forecast for next year, but reported in December that:
Recent economic indicators suggest the economy had considerable momentum into the fourth quarter. This includes broad-based job gains in recent months that have brought the employment rate essentially back to its pre-pandemic level. Job vacancies remain elevated and wage growth has also picked up. Housing activity had been moderating, but appears to be regaining strength, notably in resales. The devastating floods in British Columbia and uncertainties arising from the Omicron variant could weigh on growth by compounding supply chain disruptions and reducing demand for some services.
The federal deficit was $68.6 billion for the first half of the 2021-22 fiscal year as revenues increased; the 2021 budget projected a total shortfall of $155 billion.
2021 Liberal Platform
The Liberal platform claimed its promises on child care, health care, and housing would raise Canada’s economic growth in a “prudent” overall plan that includes a $15-billion risk provision through the end of 2023.
The Liberals promised billions in new health-care spending and provincial transfers to tackle wait times, doctor shortages, mental health, and other challenges.
On housing:
- A tax-free first home saving account for Canadians under 40
- Doubling of the First Time Home Buyers Tax Credit
- A new $4-billion Housing Accelerator Fund
- An “anti-flipping tax” on residential properties re-sold with one year
- A limit to the foreign purchase of non-recreational residential properties
- A pledge to “review the tax treatment” of Real Estate Investment Trusts (REITs) and other large corporate owners of residential property
Other pledges relating to the cost of living included:
- Expanding the Canada Caregiver Benefit
- Allowing new parents to pause student loan repayment
- Eliminating federal interest on Canada Student Loans and Canada Apprentice Loans
- Boosting GIS and OAS payments
- Expanding the Canada Workers Benefit
The platform called for debt-to-GDP ratio to fall from 51.2% this year to 49.2% by 2026, with a major increase in tax revenue.
Budget 2021
Last spring the Trudeau government proposed more than $101 billion in net new spending over the next three years in a federal budget that promised nearly $30 billion for child care and early learning by 2026 and billions more each year after that for provinces, territories, and Indigenous partners.
The aim was to cut fees for regulated spaces by 50% next year, and to reach a $10 daily average by 2026, with Freeland promising legislation by the autumn in response to the pandemic “she-cession” that has seen thousands of women leave the workforce.
The first federal budget in more than two years also proposed an additional $30 billion in COVID-19 support programs for hard-hit workers and businesses. And publicly traded corporations receiving the wage subsidy while boosting executive compensation would have to repay the equivalent, starting in early-June.
The budget projected a $155-billion federal deficit for 2021-22, with the debt-to-GDP ratio rising to 51.2%. However, the Finance department warned that a third-wave pandemic slowdown could add $15 billion to the shortfall.
The Trudeau government announced “unwinding COVID-related deficits and reducing the federal debt as a share of the economy over the medium term" as a new fiscal anchor.
And as for fiscal guardrails and concern the economic recovery had tempered the need for massive stimulus spending, the budget document argued: “A comprehensive range of indicators show that the Canadian economy is still far from seeing a strong labour market with broadly shared benefits.”
Asked about the danger of rising interest rates to the government’s debt-financed plans, Freeland told reporters she believed the greater danger to Canada’s economic and fiscal health was not properly investing in long-term growth.
Conservatives slammed the government's spending plan and called for more focus on job creation, economic growth, and accelerating vaccination.
The Bloc Québécois demanded a $28-billion increase in health transfers and expanded Old Age Security benefits. And NDP Leader Jagmeet Singh criticized the Liberals for not forcing Canada's richest people to "pay their fair share" of pandemic support and recovery.
The parliamentary budget officer later concluded that: “Current fiscal policy at the federal level is sustainable over the long term … the federal government could permanently increase spending or reduce taxes by 0.8 per cent of GDP ($18 billion in current dollars, growing in line with GDP thereafter) while stabilizing net debt at 37.7 per cent of GDP over the long term.”
