Fall Economic Update
Following what was widely perceived as a lacklustre second Budget in the Spring – and coming off of a month plagued by misstep and scandal despite a steadily performing economy – Finance Minister Bill Morneau attempted to change the channel on the Trudeau Government’s economic message this afternoon by delivering a Fall Economic Update. The update also provides a strong short-term forecast of the country’s fiscal health with longer-term questions lingering regarding spending levels and the federal deficit.
Some previously announced changes as well as a couple of new programs aimed at addressing income inequality were announced:
- Moving ahead on the Small Business Tax rate being cut from 10.5% to 9%
- Moving ahead with a $200 enhancement of the Canada Child Benefit starting next July
- A newly announced potential $80,000 credit for veterans to use in attending college or university
- A newly announced Rental Construction Financing Initiative that seeks to provide $2.5 billion dollars to finance the construction of new rental housing
- A newly announced intention to increase the WITB by $500 million annually starting in 2019-2020
The debt, projected spending, and no indicated path to balance
When the 2017/2018 Budget was tabled on March 22nd, the deficit was expected to post at $28.5 billion for the current fiscal year. Thanks to rising revenues from an economy that leads the G7, that shortfall is now expected to be $19.9 billion, and is projected to continue dropping to $12.5 billion by 2022-2023, with no projected path to balance. During the 2015 federal election campaign, the Trudeau Liberals had pledged to run maximum deficits of $10 billion, until 2019, when they promised to balance the books in time for the next election – the absence of which was seized upon by Conservative Party Finance Critic Pierre Polievre in his subsequent speech.
Morneau's fall economic statement also pegs GDP growth at 3.1% this year and 2.1% next year, up from 1.9% projected growth from March, with unemployment at rates it hasn’t seen in just over a decade. Where it gets tricky for Morneau is that growth is then projected to reduce to 2.1% in 2018, and drop to 1.6% again just in time for the next Federal election. Projections also show the Government adding $100 billion to the public debt over a period of seven years, but continues to show a debt-to-GDP fall to about 30% by the next election.
The Fall Economic Update also reveals the first projections for how much income tax the Government expects to recoup in revenue as a result of its new measures on income sprinkling, earmarking $1.2 billion in revenue over six years.
The headline measures in the update included the Government’s plan to retroactively honour a campaign pledge to lower the Small Business tax rate to 9% from the current 10.5%. This measure was announced by Prime Minister Trudeau along with Minister Morneau and Smalls Business and Tourism Minister Bardish Chagger at an event in Stouffville, Ontario last week.
Also featured heavily in the document is a moved up time-table on indexing the $23 billion Canada Child Benefit launched last July that had been a cornerstone of the Liberal economic platform in the previous election. Morneau announced two years ahead of schedule that an additional $200 dollars monthly would be made available for recipients of the program starting next July. This move was criticized by NDP Finance Critic Alexandre Boulerice as insufficient and short of a National Child Care program.
The other big-ticket item includes a reinforcement of the Working Income Tax Benefit (WITB), a $1.1 billion program that provides assistance to 1.4 million lower income working Canadians who earn between $7,000-$18,000 dollars annually. The update announces the intention of the Government to increase the WITB by $500 million annually starting in 2019-2020. Though, how the rollout of payment is framed will be teased out until Budget 2018.
Additional measures that went overlooked in the speech include a potential $80,000 credit for veterans to use in attending college or university, as well as a newly announced Rental Construction Financing Initiative that seeks to provide $2.5 billion to finance the construction of new rental housing.
The update also announces the intention of the Government to have the Canada Infrastructure Bank operational by end of the calendar year, and to announce the rollout of the $11 billion Canada Housing Strategy later this fall.
Campaign-style speech from the Minister
Delivering the update just days after the 2nd anniversary of the Liberal Party’s victory in the 2015 Canadian General Election, Morneau sounded very much like a politician on the stump. He cited that over the last 24 months the Liberals have overseen the creation of “450,000 new jobs and record youth unemployment,” as well as touting the Government’s accomplishments on the national housing strategy, the ending of boil water advisories in 26 different First Nations communities (which is still a matter of much dispute), and an increase to the guaranteed income supplement for seniors.
The Finance Minister cited a number of stories of personal encounters during the consultations, using them to frame the forthcoming amendments to his tax reform legislation, and appearing to offer a mea culpa regarding how the changes had initially been rolled out.
Outlining the changes, he offered the assurance that, “for incorporated professionals and business owners, we will preserve the flexibility to save up for a rainy day, for parental leave, or for retirement—while not allowing individuals to have unlimited tax-advantaged savings accounts over and above what is available to everyone else. And we will work with farmers, fishers and business owners to make sure they can pass down the family business to the next generation.”
After weeks under scrutiny regarding the proposed changes and his own personal fiscal controversies, Morneau also appeared to delight in taking a shot at the Conservatives over their 2011 cancellation of the Long Form Census, citing the need for data in proper decision making. Morneau concluded his remarks by stating that “in just two years we’ve done a lot together. And there is much more to do. Working together, we will make sure Canadians have every opportunity to succeed, and to build their future and a country we can all be proud of.”
Both the Conservatives and NDP accused the Finance Minister of attempting to change the channel regarding the fall parliamentary performance of the Liberals. Whether or not the measures included in the Fall Economic Update will allow the Liberals to win back alienated members of the middle class and business community, will go a long way in determining their ability to win a second mandate in 2019.
The Sussex Federal Government Relations team will continue to monitor developments regarding the 2017 Fall Economic Update. We are happy to provide you with additional insight or information at any time.