Federal Fall Economic Statement

The Top Line

The Fall Economic Statement (FES) released today by Federal Minister of Finance, Bill Morneau, serves as an important marker for a government in the final year of its first mandate.

Under the title of ‘Investing in Middle Class Jobs’, Minister Morneau and the Government used today’s Economic Statement to highlight the government’s economic policies and how they have achieved tangible economic results over the past three years. More importantly the FES lays the groundwork for the Federal Budget to be tabled in early 2019.

While today’s Economic Statement spoke to macro-economic policies and results, expect Budget 2019 to focus on government policies targeted directly at “middle class” Canadians.  Through this lens the FES and Budget 2019 will form the basis of the core economic narrative the Trudeau government will present in next October’s Federal Election.

Today’s FES highlights the government’s record on managing the debt to GDP ratio and its successes in securing export markets with an emphasis on the successful re-negotiation of the United States-Mexico-Canada Agreement (USMCA), while at the same time signaling new measures it sees as critical to Canada’s economic success.

In response to growing concerns that business competitiveness is lagging in Canada as a result of tax and regulatory changes in the United States, Minister Morneau announced a number of measures to address business competitiveness, including incentives for greater investment in capital via changes to the capital cost allowance regime.  These measures may alleviate some competitiveness concerns but we can also expect opposition criticism for the pressure they will put on federal revenues and government deficits.

The measures contained in the FES present very clear distinctions with the opposition Conservative approach to economic growth, taxes, trade and the environment, which more recently has been reinforced by provincial Conservative leaders across the country. In the coming days and weeks, we should expect considerable debate between the government and opposition on the best course for Canada’s economy and Canadians.

It is also worth noting that today’s FES was released a full month later than the 2017 FES which may indicate the 2019 Federal Budget may be delayed to March rather than February which had been expected.

Highlights

Economic and Fiscal Outlook

  • The FES provides updated deficit projections of $19.6 billion in 2019–20 and $11.4 billion in 2023–24.
  • The Federal debt to GDP ratio is projected to decline to 28.5 per cent in 2023-24.
  • In both 2018 and 2019, real GDP growth is expected to be 2.0 per cent. Over the five-year projection period, real GDP growth is expected to average 1.8 per cent, unchanged compared to Budget 2018.

New Items Announced

  • Allowing the full cost of machinery and equipment used in the manufacturing and processing of goods to be written off immediately for tax purposes, and by introducing the Accelerated Investment Incentive to support investment by businesses of all sizes and across all sectors of the economy.
  • Allowing specified clean energy equipment to be eligible for an immediate write-off of the full cost.
  • A further $800 million over five years to the Strategic Innovation Fund.
  • An Export Diversification Strategy aimed at increasing Canada’s overseas exports by 50 per cent by 2025.
  • An initiative to accelerate the removal of regulatory and other barriers in four specific areas: transporting goods between provinces and territories; harmonizing food regulations and inspection rules across the country; aligning regulations in the construction sector, and, facilitating greater trade in alcohol between provinces and territories.
  • New funding for fish stock assessment and rebuilding efforts.

Opposition Reaction

Conservative Finance Critic Pierre Poilievre strongly condemned the direction outlined by Minister Morneau.  Mr. Poilievre continued recent attacks on the government for ignoring the perils of an increasing deficit and the damage a Budget so far from balance can do to a still fragile economy. He argued that ‘the government is spending our tomorrow on their today.’ Poilievre also argued the government did not do enough in the FES to ensure Canadian businesses remain competitive.

NDP Finance Critic Peter Julian indicated in his response to the FES that the government fails to prioritize people.  He indicated the government ignored issues like housing and pharmacare to provide $5 billion in gifts to Bay Street.

Looking Ahead

With a First Minister’s Meeting taking place December 7 in Ottawa, Prime Minister Trudeau and provincial Premiers can be expected to have a spirited debate about key issues discussed in today’s FES – including the USMCA and Canada’s commitment to economic growth and global competitiveness.

After the First Minister’s Meeting the full focus of the government will be on drafting the 2019 Federal Budget and preparing for the October 2019 Federal Election for which the Budget will be a central document.

By early Spring, rhetoric surrounding the federal campaign will be in full swing even as the official launch of the campaign is not expected to take place until after Labour Day.