Finance Minister Chrystia Freeland will release a fall economic statement Thursday that includes new money for students and low-income workers, while also delivering a message that Ottawa is committed to fiscal discipline and won’t fan the flames of inflation.
Two government sources say the update will also include new details on the Canada Growth Fund, which was first announced in the April budget as a $15-billion plan to spur investment in a net-zero emission economy.
There will also be new details regarding Canada’s response to the recently approved Inflation Reduction Act in the United States, a massive bill that contains a host of government incentives for green energy investments that Canadian business leaders have said creates competitiveness concerns.
The Globe and Mail is not identifying the sources as they were not authorized to comment publicly on the matter.
Private-sector forecasts suggest Ms. Freeland, who is also Deputy Prime Minister, will be in a position to announce that the deficit for the current fiscal year could be smaller than the $52.8-billion projected in the April budget.
The Parliamentary Budget Officer released a report last month saying this year’s deficit is on track to be $25.8-billion, but that doesn’t account for new spending that will be announced in Thursday’s update. The PBO also projected a steadily declining deficit in future years. Other economists have offered a different take, projecting a recession in 2023 that will push next year’s deficit higher.
Federal Innovation Minister François-Philippe Champagne laid out the government’s dual message Wednesday while speaking with reporters.
“It’s a time to support Canadians. I mean, we have all seen the price of milk, the price of bread, the price of energy. It’s a time to help Canadians,” he said when asked whether Thursday’s statement will show Ottawa is reining in spending. He later added: “It is certain that we are in an economic period where caution is in order.”
A key challenge is ensuring that fiscal policy and monetary policy are not acting at cross purposes in the current inflationary environment. The government may be inclined toward new spending or tax relief measures to support Canadians struggling with rising prices. But this can be counterproductive, as new spending or tax cuts add to overall demand in the economy, boosting inflation.
The April budget said the deficit would drop to $8.4-billion by 2026-27. The PBO said in its report that the deficit will drop to $3.4-billion by that year.
An economic update typically includes an overview of the Finance Department’s expectations for the Canadian economy and often announces some new spending. The documents include revised estimates for what the latest economic and spending trends mean for Ottawa’s projected bottom line over the coming years.
Through a series of recent speeches ahead of Thursday’s update, Ms. Freeland has presented an economic message focused on fiscal discipline and encouraging economic growth through programs that boost research and development and investment in clean energy.
Perrin Beatty, president and chief executive officer of the Canadian Chamber of Commerce, said in an interview Wednesday that he’d like to see the update show a clear path to a balanced budget. While he said support for those most in need may be required, he hopes to see an update that provides a clear agenda for economic growth.
“We’re moving past the pandemic now. And what we need to do is to make sure that we have a path to getting our financial or fiscal house in order,” he said. “You can’t cut your way back to balance given the size of the deficit and debt. Nor should we be looking at inflating our way out of the debt that we’ve accumulated. The only responsible way to achieve it is through growth. And that means then that we’ve got to unlock investment from the private sector.”
The Liberal government announced a $4.6-billion package of inflation-relief measures in September aimed at lower-income Canadians.
Canadian Labour Congress president Bea Bruske said in an interview Wednesday that more is needed, but she is not expecting much from Thursday’s statement.
“We expect to see very few new investments announced in this update, and so we’re a little bit concerned about that,” she said. “We do think that there’s a dire need for some of those investments, because workers are certainly feeling very stretched these days, with the rate of inflation and with everything else that’s going on in the world.”
The economic outlook has worsened in recent months. The Bank of Canada’s aggressive push to tackle inflation with higher interest rates is hitting the housing market, squeezing consumer spending and dampening business investment. Exports are also expected to drop as commodity prices fall and key trading partners tip into recession in the coming months.
The Bank of Canada now expects near-zero GDP growth in Canada for the rest of the year and the first half of 2023.
“It’s not a severe recession, it’s not a major contraction, but you could certainly get a couple of quarters of negative growth,” Bank of Canada Governor Tiff Macklem told a Senate committee on Tuesday.
Multiple forces are coming together to produce the slowdown. Having allowed inflation to surge to a multidecade high, central banks around the world are rapidly increasing interest rates in one of the most comprehensive monetary policy tightening episodes on record. The U.S. Federal Reserve, the world’s largest and most important central bank, announced another 0.75-percentage-point rate hike on Wednesday.
Meanwhile, Russia’s invasion of Ukraine has caused an energy crisis in Europe, and China’s COVID-19 lockdowns have further disrupted global supply chains.
The International Monetary Fund said last month that roughly a third of the global economy will be in recession next year and warned that “the worst is yet to come.” Canada does have some advantages, and the IMF expects it to post the second strongest growth next year among G7 countries, after Japan.
“We are fortunate that this war is a bit further away from us,” Mr. Macklem told the Senate committee. “The other advantage we have is we produce many of the commodities that are in short supply. We export oil, we export natural gas, we export wheat, we export potash. The prices of those things are high.”