Sussex Highlights & Analysis: Federal Fall Economic Statement 2023

2023 FES: Highlights and Analysis

What you need to know:

• New plan offers $15 billion for housing via low-interest loans for building purpose-built rentals.
• Government announces clear pathway for Green Investment Tax Credits coming online and now includes investments in electricity and heat from waste biomass.
• Deficit remains aligned with Budget 2023 projections at $40 billion for 2023-24 but will be $9 billion greater on average annually for the next 4 years.
• More worrying is that debt service charges soar to $52 billion next year, hitting $61 billion by 2028-29.

This afternoon Deputy Prime Minister and Minister of Finance Chrystia Freeland released the federal 2023 Fall Economic Statement (“FES”). With a slowing economy and persistent inflation, Minister Freeland is framing this update as a check-in on Canada's financial situation and the government's “plan to help create good jobs, to build more homes and to make life more affordable."

The FES comes at a critical time where the government is stuck in a tough position between mounting fiscal strain and calls for costly promises to help alleviate affordability concerns. Prime Minister Trudeau and his government have been under enormous pressure from a cost-of-living crisis which has soured their poll numbers and left them approximately 15% behind the Conservatives.  

For his part, Leader of the Opposition Pierre Poilievre repeatedly cites economists and the Bank of Canada who say that excessive government spending is putting upward pressure on inflation and, consequently, is pushing interest rates and the broader cost of living higher. Minister Freeland and the Prime Minister have responded by emphasizing their fiscal responsibility and asserting, as Minister Freeland did today in her speech, that Canada maintains both the lowest deficit- and debt-to-GDP ratio in the G7.

In today’s FES, the Government aimed to balance restraint against a commitment to “support the middle class at a time when some prices are still high and mortgage renewals are looming.” From a messaging perspective, it’s difficult to have it both ways, promising belt tightening one day and massive new spending the next.  

Equally challenging, the Liberal-NDP negotiations over a renewed supply and confidence agreement have been increasingly strained over pharmacare. This morning, NDP leader Jagmeet Singh backed down on his demands to see explicit pharmacare commitments in the FES, explaining that he would accept an interim step by the end of the year of working towards a legal framework for pharmacare.

NEXT STEPS

As legislation is tabled in the coming weeks to implement the FES, all eyes will be on NDP Leader Jagmeet Singh who today called the document a micro-budget, well short of even a mini-budget in terms of the spending supports it laid out. And with no mention of pharmacare in the document, Singh will need clear messaging, including laying out expectations for policy movement on pharmacare over the coming weeks, if he is to credibly offer his support for the FES and the ongoing survival of the government.  

On balance, Sussex is confident that Singh’s support is forthcoming though not necessary as Bloc Québécois leader Yves-François Blanchet was quick to signal his party’s support.  

Ultimately the FES sets up pathways to finalizing the clean energy ITCs, moving forward the Liberals’ ambitious housing support package, preparing for Budget 2024 via a raft of consultations, and establishing the narratives that would inform an election if one were to happen in 2024. While the FES was leaner in new commitments than we have seen in previous years, it comes at a time of high political drama spurred by the slumping Liberal polling numbers. The Prime Minister and his government must certainly hope that it reverses the party’s recent fortunes – or at least halts the decline.    

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