Commentary
Finance Minister Chrystia Freeland released the fall economic update on Nov. 21. In normal times, this would not be a major event, but these are not normal times.
The Liberals are lagging badly in the polls behind Pierre Poilievre’s Conservatives. According to the oddsmakers, if an election was held today there’s a strong probability that the Tories would form a majority government with about 200 seats in the House of Commons. The Liberals would lose half their sitting members.
In the budget update, the government needed to address both cyclical and systemic economic issues. From the beginning of her speech, Freeland emphasized improved public transit, EV battery factories, and green energy projects. The finance minister went so far as to compare these programs to John A. Macdonald’s transcontinental railway. She also mentioned that under her government, Canada has attracted considerable foreign direct investment. Of course, there was no mention that Canadian taxpayers are heavily subsidizing these investments which will offset much, if not all, of the net economic benefits, and very well may end up being a net negative.
She also touted affordable early learning programs and cheap child care, which the government believes will stimulate the economy by allowing mothers to stay in the workforce. The government implies that this benefit will offset the cost to the taxpayers. There is also a question as to whether this type of program is a transfer of wealth from struggling single people and older parents and singles to mostly mothers, as 32.7 percent of Canadian babies are born out of wedlock.
The housing crisis is an issue that is not easily solved. The government is attempting to deal with a lack of housing given Canada’s rapid population growth, or at least adopt programs that it can sell to the public even if they are not significantly effective. The finance minister promised 100,000 new homes. These things are difficult to predict precisely. This figure would be something the government could market to the public but is not terribly significant in an economy of 40 million people with 400,000 to 500,000 new immigrants per year. Also, new homes do not magically appear out of the ground. It will take years before people move into these units.
The government was expected to cut $15 billion from existing government department budgets, according to leaks, but there was no mention of this in the speech. Total federal government spending was about $6 trillion in fiscal 2022, so this represents by 0.25 percent of outlays. This is certainly better than adding to the size of the government. This was not mentioned by Freeland, and Opposition leader Pierre Poilievre pointed out that the fall statement includes $20 billion in new spending.
The federal deficit is expected to increase from $35.3 billion in fiscal 2022–2023 to $46.5 billion in 2023–2024. On first glance this may seem alarming, but is less than 2 percent of GDP. The United States is currently at about 6.4 percent of GDP, which is quite distressing in an economy experiencing full employment that will probably enter a significant recession next year. Also, the main difference between the two nations’ deficits is that Canada relies more of a heavy tax burden on its citizens while the United States is adding to the debt burdens of Americans. The Canadian strategy slows the economy while the U.S. strategy propels their economy towards a debt crisis.
Canadian inflation fell to 3.1 percent in October from 3.8 percent in September. This was expected, but nonetheless it’s good news for the economy and the government. The Canadian economy is slowing, and this will relieve price pressures. However, inflation is sticky and will not be returning to 1 percent–2 percent soon.
Interest rates have appeared to peak in the interim but a return to the 2021 lows is improbable. Canadians will just have to cope with higher rates for some time, that frankly are just normal historically. Over the next three years, almost half, or just under $1 trillion of residential mortgage debt, will need to be refinanced at significantly higher rates. This will have a negative effect on economic growth as consumers will have less to spend.
The government is putting pressure on the banks and other lenders to provide relief in the form of everything from lower rates than market conditions may warrant to working with borrowers on extending amortization periods and deferring principal repayments. The new program, announced in the fall economic statement, is called the Canadian Mortgage Charter. This might be more for optics than anything else, as banks are already working with borrowers and the last thing the financial institutions want is to force people out of their homes, take write-offs, and be stuck with a huge inventory of homes to sell. We’ve seen this type of pressure on the grocery business, as the government blames supermarket CEOs for problems the government itself created and expects shareholders to pay the price.
The fall economic statement is unlikely to affect Canada in the long run. There are more significant economic realities like housing affordability and a weakening economy. A recession in 2024 would explode the deficit and put Canadians out of work.
What should have Canadians concerned is that the policies proposed in the statement were overwhelmingly oriented towards government manipulation of the economy instead of allowing the free market to fix problems that government intervention got us into in the first place.
Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
