The Top Line
This morning, the biggest question in Ottawa was how big the 2023-24 Federal deficit would be (it was $61.9 billion). At 9:15 AM, that world was turned upside down when Deputy Prime Minister and Finance Minister Chrystia Freeland announced that she was resigning from Cabinet, effective immediately. That led to a chaotic day that was capped by the Prime Minister’s lifelong friend and skilled political ally Dominic Leblanc being sworn in as the Minister of Finance, as well as the tabling of a Fall Economic Statement that contains several significant announcements that will require legislation (and, eventually, confidence votes) to implement. To top it off, the Liberal’s held a National Caucus meeting at 5:00 PM, during which the Prime Minister addressed his elected colleagues. As of 8:30 PM, the Prime Minister had not publicly responded to the events of the day and Members of Parliament leaving the caucus meeting refused to say if the Prime Minister was staying on or resigning. As such, the intrigue gripping the Government and Parliament will continue for at least another day.
9:15 AM: The Resignation That Shook Ottawa
Deputy Prime Minister and Finance Minister Freeland announced her resignation from Cabinet on X, but indicated she will continue to sit in the Liberal Caucus and will run in the next election. In her resignation letter, she issued some sharp rebukes to the Prime Minister. Amongst other criticisms, Ms. Freeland harshly alluded to the recent plan for a broad-based GST rebate and holiday by saying the Government should be “eschewing costly political gimmicks which we can ill afford and which can make Canadians doubt we recognize the gravity of the moment”. Her resignation followed several leaks that indicated the Prime Minister was seeking a new Finance Minister. Clearly, Ms. Freeland chose to exit the Finance Ministry – and ultimately Cabinet – on her own terms, not those of Mr. Trudeau.
4:00 PM: Fall Economic Statement Proceeds Without a Minster of Finance
Despite the chaos of the day, the Government tabled a lengthy and detailed Fall Economic Statement (FES), albeit without the traditional speech by the Minister of Finance in the House of Commons.
The Statement went to great lengths to explain the current Federal debt and deficit figures as a result of necessary government spending during and after the COVID-19 pandemic, including to secure a “soft landing” for Canada from the post-recession inflationary period.
However, there is no disguising that the Government has badly missed its Budget 2024 fiscal guardrail of limiting the 2023-24 deficit to $40 billion, with that figure instead coming in at $61.9 billion, as well as a projection to once again miss that target this fiscal year, with a $48.3 billion deficit in 2024-25. The sole remaining fiscal guardrail to which the Liberal government can cling – keeping the Federal deficit-to-GDP ratio at less than 1% beginning in fiscal year 2026-27 must surely be in doubt.
To the extent the FES was a major development today, it did have a focus on industrial and economic growth measures. However, many of those measures will require enacting legislation, which will create confidence votes the Government can ill afford and makes the long-term future of policies announced today uncertain.
Major items in the Statement include:
- Re-announcement of the GST holiday between December 14, 2024, and February 15, 2025;
- A $1.3 billion border security package, and a focus on securing the Canada – U.S. relationship;
- A package of AI initiatives, including the priorly announced $2 billion Canadian Sovereign AI Compute Strategy, allowances for investments by Federal pension funds in AI data centres, and a more detailed public service strategy for AI;
- Increasing the generosity of the Scientific Research and Experimental Development Tax Credit Program and reinstating the Accelerated Investment Incentive;
- Loosening the rules around Federal pension fund investments in higher risk, growth-oriented projects (including airport infrastructure);
- Launching the Canada Indigenous Loan Guarantee Corporation as a vehicle to increase Indigenous ownership stakes in natural resources projects; and
- An intent to impose tariffs on imports of certain solar products and critical minerals from China early in 2025 and tariffs on semiconductors, permanent magnets, and natural graphite from China beginning in 2026.
4:15 PM: Dominic Leblanc Appointed Finance Minister
The Prime Minister tapped the highly-capable and – crucially – very loyal Dominic LeBlanc to replace Minister Freeland in the Finance portfolio. Minister Leblanc has known the Prime Minister since their childhoods, but his appointment is less to do with history and more a result of him being one of Cabinet’s most consistent performers, a strong communicator in both official languages, and someone who is politically nimble enough to work with Donald Trump. Minister Leblanc will now inherit the task of shepherding any legislation to implement the FES through the House of Commons and of developing and delivering the 2025 Budget.
Meanwhile, Minister Leblanc’s appointment clearly signals that Mark Carney has once again rebuffed efforts to publicly recruit him to join the Liberal Cabinet.
Mr. Leblanc also remains Minister of Public Safety for now, though a broader Cabinet shuffle is a virtual-certainty in the short-to-medium term. Public Safety is one of the most important portfolios for Canada-US relations in the aftermath of the election of President Trump, and the file cannot be left in the hands of a multi-tasking Minister for long.
5:00 PM: National Caucus
The day was capped by an impromptu meeting of the Liberal Caucus. While many were hoping the meeting would provide some clarity on how the Prime Minister would respond to the day’s unprecedented events, the meeting instead ended without any public statement by the Prime Minister, and MPs and Ministers leaving caucus refused to say what the Prime Minister’s intentions were, saying that was for him to decide. The Prime Minister also didn’t comment substantively on the matter at a major Liberal fundraising event later in the night.
What Comes Next
Today brought the biggest challenge ever to Justin Trudeau’s leadership of the Liberal Party, and it was a largely self-inflicted wound due to the lack of any actual imperative to shuffle the Cabinet.
If the Prime Minister stays in his job, the next steps are clear: He will once again have to stare down (growing) internal dissent from some of his caucus, shuffle the Cabinet, use the next few weeks to rebuild caucus support and develop a legislative strategy for 2025, and prepare for President-Elect Trump to be inaugurated. In addition to all this, he will have to deal with the fact that Jagmeet Singh, whose NDP Party has supported Trudeau’s Government through confidence votes, has now publicly called on him to resign. In the meantime, mobilization of leadership camps to replace the Prime Minister are likely to become more open and aggressive. If he decides to resign, the Liberal Party will be forced to conduct a very rapid leadership race, and the Government would face a leadership vacuum that would almost certainly require proroguing Parliament to avoid confidence votes while that contest occurs.
