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The Fall Economic Statement: A Second Wave (of Spending) – A Vantage Perspective

This afternoon, in her first major act as Finance Minister, Chrystia Freeland unveiled the government’s 237-page Fall Economic Statement. Saying “we can do this, we must do this, and we will do this,” Minister Freeland laid out the beginnings of her long-awaited plan for pandemic recovery.

THE NUMBERS

When the government released its “economic snapshot” this summer, it tentatively forecasted a 2020-21 federal deficit of $343.2 billion. But it was careful (and smart) to couch its projection with the caveat that “the potential for a second wave looms.” Now firmly entrenched in the second wave, the government has revised the 2020-21 federal deficit projection to $381.6 billion. “Escalated restrictions” could push this number to $398.7 billion. With a recovering economy and the end of direct aid measures, the government predicts the deficit will drop to $121.2 billion in 2021-22, and to $50.7 billion in 2022-23.

Canada’s debt-to-GDP ratio, which hit 39.4% in 2019-20, could reach 51.4% by the end of this fiscal year. Still, the government is reiterating its argument that spending is better than not spending. According to the Department of Finance, the government’s direct support measures will result in economic activity being 4.6% higher than if there were no economic supports.

THE SHORT-TERM

Effective almost immediately, the government is rolling out an additional $25.1 billion in health and economic measures to help Canadians stay “healthy, safe, and solvent” through the pandemic. Much of this new funding is being funneled into existing programs: the Canada Emergency Wage Subsidy, the Canada Emergency Rent Subsidy, the Lockdown Support, and the Regional Relief and Recovery Fund are all being topped-up, increased, and/or extended. The Canada Emergency Wage Subsidy’s maximum subsidy rate will return to 75% for the periods of December 20-January 16, January 17-February 13, and February 13-March 13. The current subsidy rates for both the Canada Emergency Rent Subsidy and the Lockdown Support will be extended until March 13, 2021. The Regional Relief and Recovery Fund will receive an additional $500 million, which will be particularly aimed at supporting local tourism businesses. The government is also proposing to introduce the Highly Affected Sectors Credit Availability Program, a new government-guaranteed low-interest loan program for the hardest hit businesses (tourism and hospitality, hotels, arts, and entertainment are the four explicitly named), with loans of up to $1 million. The Strategic Innovation Fund, the government’s fund for large-scale innovation projects, will be awarded another $250 million. Local television and radio stations will have their 2020-21 broadcasting Part II licence fees waived. Today’s statement also includes “support for the air sector,” but with relatively tepid commitments mostly aimed at airport authorities, this is unlikely to appease the industry.

THE MEDIUM-TERM

After the virus is “under control”, the government “will deploy an ambitious stimulus package to jump-start our recovery.” Opening the public wallet to the tune of $100 billion over the next three fiscal years (roughly valued at 3-4% of GDP), the government will make “smart, time-limited investments” that can “have long-run value by creating shared prosperity, improving Canadians’ quality of life and powering our green transformation.” While full details are saved for the spring’s budget, the statement offers an outline of what’s to come.

Family supports: saying “I say this both as a working mother and as a Finance Minister – Canada will not be truly competitive until all women have access to affordable child care,” Minister Freeland’s statement offered concrete first steps towards a national child care program: the government is proposing to establish (and fund) a Federal Secretariat on Early Learning and Child Care to “build capacity within the government and engage stakeholders to provide child care policy analysis in support of a Canada-wide system.” The government is also proposing to increase the Child Care Benefit by 20%, expand the First-Time Home Buyer Incentive in Toronto, Vancouver, and Victoria, and help youth by eliminating interest on the federal portion of student loans for 2021-22 and enhancing Canada Summer Jobs funding.

Environment: calling for a “competitive, green economy” the statement outlines how the government intends to invest in “meaningful climate action.” The statement highlights actions such as financing home energy retrofits, investing in zero-emission vehicle infrastructure, and planting 2 billion trees. Farmers are given a special shout-out, for their unique ability to offer nature-based climate solutions, as is the Canada Infrastructure Bank.

Health: the government is creating a $1 billion Safe Long-term Care Fund, to help provinces and territories protect people in long-term care and support infection prevention and control. The federal government also intends to work with provinces and territories to develop new, national standards for long-term care homes. Despite earlier promises, the statement offers no concrete funding commitments for pharmacare.

THE LONG-TERM

The government is not prepared to commit to any hard dates for an ultimate recovery: “uncertainties about the timing of the pandemic and global economic developments mean that the timeline for the recovery should not be locked into a rigid pre-determined calendar.” No fiscal anchor will guide the government’s next moves – in fact, the government’s long-preferred term for spending caps has been replaced with the looser language of “fiscal guardrails”, which are “data-driven triggers” (e.g. employment rate, unemployment rate, total hours worked) that “will let us know when the job of building back from the COVID-19 recession is accomplished and we can bring one-off stimulus spending to an end.”

Despite the (sensible) hesitation, the government does identify some long-term revenue-generating policies, including, what it calls a “fair tax system.” This includes changes to the employee stock option tax rules, taxing “unproductive” use of Canadian housing by foreign non-resident owners; requiring foreign-based vendors selling digital products or services and digital accommodation platforms (e.g. AirBNB) to collect and remit GST/HST, and implementing a tax on corporations providing digital services as of January 1, 2022.

THE BOTTOM LINE

The end is in sight. A search of today’s document for “third wave” reveals nothing. The vaccines are coming, and the pandemic will end – or as Minister Freeland put it, “after winter, comes spring.” The government’s line in the days ahead will be that it is doing “whatever it takes – for as long as it takes – to weather the storm.” With the storm now approaching month nine, the government is surely willing our most effective umbrella (the vaccines) to arrive soon.  

For help navigating the world of government or to receive McMillan Vantage’s tri-weekly COVID-19 updates, please contact info@mcmillanvantage.com. 



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