The Statement
The Government of Canada’s 2022 Fall Economic Statement focused on preparing for the recession ahead, and signalled to stakeholders that, except for core political initiatives, the government purse strings are tightening — even with a smaller-than-expected deficit in the offing. Here’s what you need to know.
Deputy Prime Minister and Minister of Finance, Chrystia Freeland tabled the government’s relatively short and understated Fall Economic Statement. With affordability issues and a slowing economy top of mind for Canadians, today’s statement outlines new spending aimed at students and low-income workers, seeks to stimulate growth in Canada’s natural resource and clean tech sectors, while also signalling the government is intent on addressing inflation and a possible recession with fiscal discipline. The finance minister did not, however, completely cut off new spending, offering $30.6 billion of new initiatives over the next six years.
What It Is
Fall economic statements outline the Department of Finance’s economic projections for the coming months, provides an opportunity to signal progress on key priorities and often includes some smaller spending announcements.
Although economic statements are considered a matter of confidence, the government will almost certainly receive the continued support of the NDP, as they seek to implement key aspects of the Confidence and Supply Motion signed in March 2022.
Freeland already set the tone for a more measured approach to spending through several speeches in recent weeks, warning of a slowing economy and directing ministers to fund 25 per cent of new spending via their existing budgets and today’s statement is reflective of a major pivot in the government’s approach.
The Pressures
The global economic outlook is worsening; the International Monetary Fund has warned of widespread recessionary conditions next year, a statement echoed by Chrystia Freeland in recent weeks. The Bank of Canada has been aggressively raising interest rates over the past months in order to get a handle on inflation, but rising rates have slowed the housing market, creating a challenging environment for consumer and business confidence.
Despite gloomy predictions, the government’s fiscal position is better than anticipated due to strong oil prices and tax revenues. The Fall Economic Statement forecasts a deficit of $36.4 billion, instead of the $52.8 billion deficit projected in the government’s last budget. Despite this, the outlook could worsen given the volatility expected in the global economy and Minister Freeland was careful to outline the “downside scenario” for Canada’s economy.
The government is also concerned about the recently passed US Inflation Reduction Act which provides substantial funding to spur the green economy south of the border, responding with tax credits aimed at stimulating growth in Canada’s natural resource sectors, particularly clean tech and a net-zero economy.
Uncertainty around the continued impact of COVID-19 and other pressures on our healthcare system also present challenges for this government, with health care spending a key source of tension between the provinces and federal government.
The Spending
Today’s economic statement outlines $30.6 billion in new spending over the next six years, in addition to the announced a $4.6-billion package of inflation-relief measures in September aimed at lower to middle income Canadians, including the Canada Dental Benefit, doubling the GST tax credit for six months and a one time top up of the Canada Housing Benefit.
Key Initiatives Include:
Lowering Credit Card Transaction Fees for Small Businesses
The government announced it will enter into negotiations with the credit card industry and businesses, to find a way to lower transaction costs for businesses. It also signalled it would proceed with regulating credit transaction fees in the new year if negotiations are not fruitful.
The Investment Tax Credit for Clean Technologies proposes a refundable tax credit equal up to 30 per cent of the capital cost of investments in Electricity Generation Systems and Industrial zero-emission vehicles.
The Investment Tax Credit for Clean Hydrogen launches consultations on how best to implement an investment tax credit for clean hydrogen. The government is considering a system similar to that in the US, with heavy investments in clean hydrogen with carbon intensity tiers to guide the level of investment.
Launch of the Canada Growth Fund outlining the design, operations and investment strategy of the Canada Growth Fund, initially announced in Budget 2022.
Launch of a Canadian Innovation and Investment Agency to assist companies to scale, commercialize, grow, and create jobs in the current global economy.
A new Tax-Free First Home Savings Account, which will allow prospective first-time home buyers to save up to $40,000 tax-free toward their first home.
Doubling the First-Time Home Buyers’ Tax Credit to provide up to $1,500 in direct support to home buyers, starting in 2022, to offset the increasing closing costs involved in buying a home.
Despite the government’s recent statements on securing Canada’s critical mineral supply, there was no new announcement or funding allocated.
The Discipline
The government indicated that they intend to balance the budget by 2027/2028, and despite signalling fiscal restraint, did not make any major spending cuts.
The 2022 Fall Economic Statement announces plans to tax share buybacks, and reaffirms the government’s intention to introduce a new minimum tax regime for the wealthiest Canadians, and to combat tax avoidance.
The government also launched consultations with stakeholders on digital currencies, including cryptocurrencies, stablecoins, and central bank digital currencies on November 3, 2022.
The Bottom Line
The government must carefully balance a need to support Canadians through challenging economic conditions and their spending commitments under their agreement with the NDP, with the need to show fiscal restraint and appeal to so-called blue Liberals, who may be considering voting for Poilievre’s Conservatives. We can expect fiscal restraint to feature in the government’s approach going forward as they attempt to mitigate a slowing global economy.
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