Monday was supposed to be tough enough, with a tricky Fall Economic Statement (FES) scheduled for a government battling a ballooning deficit and a trade war with the United States.
Just after 9 AM Chrystia Freeland announced her resignation as Finance Minister and Deputy Prime Minister, was replaced by Dominic LeBlanc in the afternoon, and by end of day Prime Minister Justin Trudeau appeared to be fighting for his political life.
All three opposition leaders — including New Democrat Jagmeet Singh, who has been propping up the Liberal government — have now called for Trudeau’s resignation. And even more Liberal MPs have added their names to the list of those calling for the Prime Minister to go.
As for the FES, it landed with a thud. A $61.9 billion deficit for the previous fiscal year made a bad news day worse still. It also did little to quell concerns about Canada’s readiness to weather the economic storm brewing south of the border.
The document was supposed to help Canada buttress its plans to respond to President-elect Donald Trump’s threat of 25% tariffs, building on Trudeau’s trip to Trump’s Mar-a-Lago estate recently. The incoming President is demanding that Canada take stronger measures to address irregular migration and fentanyl trafficking at the border. What Washington sees now is anyone’s guess. But for now, anyway, the Liberal government stands, and Trudeau remains Prime Minister.
Here’s what you need to know about FES 2024 and what might happen next in Canadian politics.
Addressing U.S. Border Concerns
The FES highlights $1.3 billion in new spending. All of this is new money but there are few details on how or where that will be allocated. Proposed initiatives are expected to include enhanced enforcement mechanisms to curb irregular migration and collaborative efforts with the U.S. to disrupt fentanyl trafficking networks. But the spending commitment is less about the details and more about signaling new intent.
Tackling Housing Affordability
The government continues to underline targeted measures to boost supply and stabilize costs. These include previously announced plans to double the loan limit for building secondary suites to $80,000, lower down payment requirements for homes priced between $1 million and $1.5 million, and expanded eligibility for 30-year mortgages.
FES 2024 introduces few new housing initiatives but extends the Federal Community Housing Initiative to support affordable rents and allocates funding for women’s shelters through the Affordable Housing Fund. The document also emphasizes that Canada is lowering its interest rates faster than any other G7 country – which is not fiscal policy but a good political frame.
The government’s goal remains to ease financial pressures on Canadians grappling with high rents and limited housing availability, but FES 2024 offers little in new substance to meaningfully increase housing supply.
By the numbers
The FES paints a precarious fiscal position amid economic uncertainty. Although Ottawa has met its debt-to-GDP ratio target, the government has blown past its commitment to keep the deficit at $40 billion. Rather, the deficit this year hit $61.9 billion for the 2023-24 fiscal year. Over $20 billion of that is tied to a class-action settlement over treatment of Indigenous children in the child welfare system. The government projects the deficit will drop to $48.3 billion in 2024-25.
New spending and reinstating the Accelerated Investment Incentive
FES 2024 introduced $24.2 billion in new spending, including $1.6 billion on the two-month GST/HST holiday that began Saturday. As much as $3.1 billion will be offset by new revenues and savings measures, for a net increase of $21.1 billion.
The lion’s share of that money, $17.4 billion, will go to extending the Accelerated Investment Incentive, which helps companies offset investments in capital spending that depreciate quickly. This measure was slated to be phased out this year but now has been fully reinstated. This relates to new machinery and equipment, clean energy generation and conservation equipment, zero-emissions vehicles, and other eligible capital investments.
Other new spending includes funding for community security infrastructure projects and emergency preparedness, a new Black Justice Strategy, support for women’s organizations, and $90 million in long-term funding for the Sexual and Reproductive Health Fund. FES also expanded grants for certain science and research and development activities, AI research and regulation, and introduced changes to non-compete practices to reduce “barriers to labour mobility.”
Encouraging investment in Canadian companies and open banking
As announced last week, FES removed the cap that restricted Canadian pension funds from owning more than 30 per cent of the voting shares of a Canadian entity to encourage more investment in domestic companies. Implementation will include provincial consultation to potentially involve their public plans as well. Other measures include a fourth round of the Venture Capital Catalyst Initiative, with $1 billion in funding available in 2025-26. FES also offers up to $1 billion to invest in mid-cap growth companies and unlocks up to $45 billion in aggregate loan and equity investments for certain artificial intelligence data centre projects.
The now former finance minister also announced last Friday that the government is exploring lowering the threshold that limits municipal-owned utility corporations from attracting more than 10 per cent private sector ownership, which Ottawa says would help Canadian pension funds acquire a higher ownership share. Freeland characterized this announcement in the context of rising “economic nationalism” internationally.
Additionally, the FES includes a long-awaited framework for consumer-driven banking (open banking) with a goal of ensuring Canadians and small businesses’ financial data is shared safely and securely. The government announced the initial framework in Budget 2024, passed the Consumer-Driven Banking Act in June 2024, and promised to review the measures in three years. With the introduction of the remaining pieces of the consumer-driven banking framework, the Department of Finance will now move on to consulting with relevant stakeholders on necessary regulations.
Political Dynamics
Trudeau may well hang on. If so, he likely will shuffle his Cabinet this week, replacing Housing Minister Sean Fraser, who resigned at about the same time as Freeland, as well as other Ministers not seeking re-election.
There’s no guarantee Trudeau will hang on. Freeland’s scathing resignation letter made it clear that she, along with many others in caucus, have lost faith in his leadership.
But NDP Leader Jagmeet Singh said that while he thinks Trudeau should resign, he was unwilling to commit his party to voting no-confidence.
This rules out a snap election now but sets up another potential course: Trudeau prorogues Parliament and plays for time. He indicated to caucus late Monday he wants to take the holiday break to reflect. He could then still resign in early 2025, setting the stage for a leadership race.
Regardless, the odds of this government – which is no less than 20 points down in the polls – making it to the scheduled election date in Fall 2025 have just grown longer.
Conservative Take
Over the last two years, inflation and the cost of living have dominated political discourse, to the Conservatives’ benefit. Conservative Leader Pierre Poilievre has focused on what he views as more responsible government spending. The FES revealed an even bigger deficit, and the Conservatives will no doubt emphasize this.
Poilievre also seeks to seize on Liberal chaos to widen his voter coalition, appealing to “blue Liberals” concerned about the country’s worsening fiscal situation.
What’s Next For You and Your Business
Businesses and stakeholders should temper any expectations for significant new federal investments beyond what has already been announced. What has become of the highly anticipated announcement of an expensive high-speed rail megaproject between Toronto and Quebec City, for example, which had been expected by now?
Canada faces a pivotal few months, contending with economic uncertainty, domestic political instability, and a challenging relationship with a new Trump administration. And, we hesitate to note, Budget 2025 isn’t far away.
