The federal Fall Economic Statement tabled Tuesday by Finance Minister Chrystia Freeland balances competing political needs: tackling the affordability and housing crises against reining in spending and demonstrating fiscal restraint.
The minority Liberals are further constrained by their need to work with the New Democrats to maintain their Supply and Confidence Agreement and by the Conservatives’ large lead in the polls spurred by the government’s perceived weakness on issues of affordability.
It was a given that in Tuesday’s document the Liberals would demonstrate tangible steps on issues that hit Canadians’ wallets. And they did, with (sometimes re-announced) promises to hold big grocery stores to account and lower prices, to give consumers more control over their right-to-repair, to tackle “junk fees” in telecom and banking, to introduce initiatives to increase the supply of affordable and rental housing, and to crack down on short-term rentals.
These issues will drive headlines and become headaches for many business leaders. However, the FES is not a mid-year budget as in recent years but, instead, focuses on key political priorities while also finally providing some details on long-promised tax credits to spur private investment in clean technologies.
Here is what you need to know about the FES:
HOUSING
In addition to some previously announced housing initiatives, the FES included new measures such as:
- Removing the GST from new rental housing (which has been amended from an earlier fall announcement to include co-operative housing corporations that provide long-term rentals);
- Issuing Canadian Mortgage Bonds in order to secure $20 billion in low-cost financing for rental construction of up to 30,000 more homes per year;
- Providing $15 billion for loans through the Apartment Construction Loan Program to help build another 30,000 new homes;
- Leveraging the previously announced $1 billion in the Affordable Housing Fund to help build more than 7,000 new homes for those who need them most;
- Measures that target short-term rentals with new taxes and a promise to support municipal enforcement of their own restrictions on these rentals with an eye to unlocking housing supply; and
- A new Canadian Mortgage Charter to ensure Canadians struggling to afford their payments in a higher-interest rate environment can access “tailored” support from their banks to help them make tiered payments and stay in their homes.
AFFORDABILITY
While affordability is a key aspect of the government’s political agenda, the FES contained details on mostly previously announced measures, including:
- Strengthening competition in Canada, which is designed to spur lower prices and more choice, by reforming legislation to crack down on unfair practices;
- Ensuring Canada’s five largest grocery chains keep their commitments to stabilize prices, and enhancing competition in the grocery sector;
- Removing the GST from psychotherapy and counselling services to make mental health care more affordable for Canadians;
- Continuing to crack down on so-called junk fees, including lowering non-sufficient fund (NSF) fees charged by banks, investigating international mobile roaming rates, and ensuring that airlines seat all children under the age of 14 next to their accompanying adult at no extra cost;
- Amending legislation to support Canadians’ right to repair their devices and products by preventing manufacturers from acting in an anti-competitive manner by refusing to provide the means to repair them;
- Enhancing low-cost and no-cost banking accounts while designating an independent ombudsman to help Canadians resolve complaints with their banks; and
- Promising to enact “a consumer-driven banking framework” (open banking framework) to regulate access to financial data through Budget 2024.
Newly announced measures include an Employment Insurance adoption benefit, which would provide 15 weeks of shareable benefits to parents.
COMPETITION ACT
The government focused its communications on re-announcing measures proposed in September in the government’s Bill C-56 An Act to amend the Excise Tax Act and the Competition Act to tackle grocery prices and strengthen Competition Act enforcement. But the FES also added provisions to tighten rules not highlighted. These focus on giving the Competition Bureau more powers to make recommendations related to acquisitions and to provide support for those who bring forward complaints. Many of these proposals are said to stem from a request from the NDP in exchange for supporting passage of C-56.
Specifically, the government promises to:
- Give the Competition Bureau more tools and powers to crack down on big companies which engage in actions like “predatory pricing;”
- Give the Bureau more power to review mergers and detect initiatives like “killer acquisitions” and other anti-competitive behaviour;
- Prohibit “greenwashing” claims through the Act and also add more analysis of worker impacts during competition reviews under the Act;
- Give the Commissioner the ability to examine more potential forms of “anti-competitive behaviour” and impose tougher penalties on offenders to prevent repeated violations; and
- Allow more private parties to bring cases before the Competition Tribunal and also reward them costs if they are successful.
We do not expect these changes to be implemented in the legislation associated with FES, but instead through amendments to C-56, which was tabled in September and has been time allocated through an agreement with the NDP.
CLEAN TECH TAX CREDIT ROLLOUTS
The FES confirms the government will follow the approach from an August consultation regarding implementation of several tax measures and financial instruments — including many hotly anticipated clean energy tax credits. The government continues to promise legislation to implement these initiatives, including:
- The Carbon Capture, Utilization, and Storage Investment Tax Credit;
- The Clean Technology Investment Tax Credit;
- Labour Requirements Related to Certain Investment Tax Credits;
- The Clean Hydrogen Investment Tax Credit;
- The Clean Technology Manufacturing Investment Tax Credit; and,
- The Clean Electricity Investment Tax Credit.
- Employee Ownership Trusts
- The Income Tax and GST/HST Treatment of Credit Unions;
- The Alternative Minimum Tax for High-Income Individuals;
- Global Minimum Tax (Pillar Two);
- Digital Services Tax; and
- Various luxury taxes, vaping taxes and GST/HST changes.
The FES also announced a new investment tax credit covering 30 per cent of an investment in waste biomass that produces heat and electricity, and covering 15 per cent of waste biomass that produces electricity.
In addition, the Canada Growth Fund will allocate, on a priority basis, up to C$7 billion of its C$15 billion in capital to ramp up contracts for difference, which help guarantee the future price of carbon credits for investors.
THE ECONOMICS
The FES comes amid uncertain economic conditions, with consumer confidence wavering and the possibility of a technical recession looming. The FES suggests Canada will avoid a recession but says economic growth will slow to a crawl in the next year.
The growing deficit also remains a concern. With interest rates at a 20-year high, debt servicing charges have more than doubled and now account for one of the largest parts of government spending.
High interest rates not only affect public spending but will also continue to affect businesses as they seek to finance investment, and Canadians directly, through mortgage renewals and other increased borrowing costs. The higher cost of borrowing could well stifle growth as it depresses consumers’ ability to spend.
Statistics Canada also provided an update on inflation today, which showed the Consumer Price Index fell to 3.1 per cent from 3.8 per cent on a year-over-year basis in September. Lower gas prices were the main reason but mortgage interest costs, groceries, and rent continue to be of concern. It’s no coincidence then that the FES was heavily focused on such pocketbook issues.
THE ELECTION
Every minority parliament draws speculation about the timing of the next election. However, the NDP has expressed little willingness to bring the government down (yet) and there is no “poison pill” buried in the FES.
Expect the government to motor along at least until the spring 2024 budget.
WHAT’S NEXT
The government will continue to work on unfulfilled commitments and seek to improve riding-level politics. Pocketbook issues will continue to dominate the political agenda. Geopolitics and global economic challenges will also continue to rattle the Liberals.
Legislation to implement the FES will be tabled soon, and there remain opportunities to seek detailed changes through amendments in committee or when regulations are drafted.
For companies seeking to learn more about the Fall Economic Statement or other aspects of federal policy please contact info@mcmillanvantage.com.
