Feds warn of economic slowdown as fiscal update outlines path to balance

By Cormac Mac Sweeney and Hana Mae Nassar

The Trudeau Liberals have unveiled their first-ever path to a balanced budget in their latest fiscal update.

The government’s Fall Economic Update, presented Thursday, outlines some of the progress the government has made on previously announced proposals, like the doubling of the GST Tax Credit and top-ups to housing credits. However, it offers no broad-based inflation relief.

Deputy Prime Minister Chrystia Freeland acknowledges how inflation has put many Canadians in a tough spot financially.

“I am confident that we have struck the right approach in general and in this Fall Economic Statement. And what we’re announcing today, what we’ve been doing throughout, is to strike a balance between necessary compassion and support for Canadians, and fiscal responsibility,” she said.

“And we know we need to strike that balance because we know how important it is right now in this economic moment where we find ourselves, for the federal government not to pour fuel on the flames of inflation. We really don’t want to make the central bank’s job harder, we don’t want to put the Bank of Canada in the position where it has to raise rates higher and keep them there for longer. That truly would not be a compassionate thing to do.”


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She highlighted the anxiety many people have been feeling “about whether Canada’s future will be as prosperous as our past,” as well as the anxiety felt “about paying the bills today.”

“I know it’s felt like just one thing after another since COVID first reached our shores. We turned the economy off, and then we turned it back on again. Vladimir Putin invaded Ukraine. And now we are dealing with inflation,” Freeland added, noting the situation Canada has found itself in is not unique.

She warns we are heading to a global economic slowdown. While inflation continues to affect everyone, she admits the government can’t help everyone, as that could have consequences of its own.

“We cannot support every single Canadian in the way we did with emergency measures at the height of the pandemic. To do so would force the Bank of Canada to raise interest rates even higher. It would make life more expensive, for everyone, for longer,” the deputy prime minister said.

That said, the federal government has announced some new measures, and is also providing updated timelines and progress on others, to help address some of the burdens Canadians are dealing with.

Timeline to a balanced budget

In addition to new measures and highlighting previous plans, the fiscal update also finally shows Canadians the Trudeau government’s path back to balance — the first such update since the Liberals came to power seven years ago.

The deficit for this current fiscal year is 30 per cent less than projected in the spring budget, coming in at around $36 billion. The five-year outlook has the country back in a budget surplus of $4.5 billion by the 2027-28 fiscal year.

This, however, is if all goes to plan. The government’s downside projections show that if the economic situation takes an unexpected turn for the worse, the budget will remain in the red into that timeframe.

The projected budgetary surplus comes as a potential recession looms and as the government promises to increase spending on green tech and a climate-friendly economy

Some new measures in the Fall Economic Update

Many of the measures outlined by Freeland and the Liberal government are promises that made up both the party’s 2021 election platform as well as Budget 2022.

Since this is a minority government, the measures outlined in the fiscal update would normally be seen as a matter of confidence. However, since the NDP has a supply and confidence agreement with the Liberals, these measures are expected to pass.

However, there are some new measures to note.

Quarterly Canada Workers Benefit payments

The federal government has announced proposed changes to the Canada Workers Benefit, namely to provide $4 billion over six years to automatically issue advanced payments to those who are eligible. The payments would go to those who qualify in the previous year, starting next July for the 2023 taxation year.

Under these changes, “workers would receive a minimum entitlement for the year through advance payments based on income reported in the prior year’s tax return, and any additional
entitlement for the year would be provided when filing their tax return for the year.”

Split between three payments, the measures would provide up to $714 in total for single workers and up to $1,231 total for a family.

Student/apprenticeship loan elimination

There have been ongoing calls to forgive student loans. However, the government isn’t going that far.

Instead, the Trudeau government is proposing to permanently eliminate federal interest on all Canada Student Loans and Canada Apprentice Loans, “including those currently being repaid.” This comes after Budget 2022 included the waiving of interest on Canada Student Loans until March 2023.

Credit card fees for small biz

In an effort to help deal with costs, the federal government is looking to lower credit card transaction fees for small businesses. The fall update says the government “intends to enter into negotiations with the payment card industry and businesses” to work toward a solution that will see a reduction in fees. The goal, the government says, is to reach an agreement “in a manner that does not adversely affect other businesses and protects existing reward points for consumers.”

The fiscal update notes that if the parties involved in talks do not come to an agreed solution “in the months to come,” the government will move forward in 2023 with draft legislative amendments it published on Nov. 3, 2022 to bring costs down.

Green investments

The fall economic statement creates two new federal tax credits for clean technology and low-emitting hydrogen production.

The statement is Freeland’s first big push to keep Canada in the clean-tech economy race in the shadow of the massive Inflation Reduction Act south of the border. Despite this, much of the heavy lifting in response to the U.S.’ investments is being left to next year’s budget.

The fiscal update says the specifics of the promised tax credit for clean hydrogen production and new investment measures to spur growth in electric vehicle and battery manufacturing are still in development.

There are more details on the new tax credit for investments in clean electricity generation, energy storage systems and low-carbon heating equipment, including that it will cost nearly $6.7 billion over the next five years and launch the day the 2023 federal budget is tabled.

It will also be the first Canadian tax credit that is more lucrative for companies that pay a fair market wage and have training programs for young workers.

More updates to what we already know:

GST Tax Credit

In September, the Trudeau government announced it was doubling the GST Tax Credit for six months. It’s estimated about 11 million low- and modest-income earners would start receiving additional payments as of Nov. 4. Single Canadians without children could get up to $234 more, while couples with children are expected to receive up to an extra $467. Seniors, meanwhile, are set to receive on average an extra $225.

Canada Dental Benefit

The federal government introduced legislation in September to provide eligible parents and guardians direct, tax-free payments to cover dental expenses for kids under 12. The benefit will provide payments of up to $650 per year over next two years for families with an annual income under $90,000.

Tax-Free First Home Savings Account

As outlined in Budget 2022 this past spring, the government is following through on its Tax-Free First Home Savings Account promise.

Eligible Canadians will be able to start making contributions to the account in mid-2023.

The plan is expected to help prospective first-time homebuyers save up to $40,000 to put toward a first home. Similar to an RRSP, contributions are tax-deductible. Withdrawals to buy a first home would also be non-taxable.

First-Time Home Buyers’ Tax Credit

Doubling of the First-Time Home Buyers’ Tax Credit, starting in 2022, was announced in the budget as a measure to “offset the increasing closing costs involved in buying a home.”

The government explains the measure would “provide up to $1,500 in direct support to home buyers, starting in 2022.”

Multigenerational Home Renovation Tax Credit

The Multigenerational Home Renovation Tax Credit was included in Budget 2022. As part of the fall economic update, the government says the “new, refundable” credit would “provide up to $7,500 in support” to build a secondary suite “for a family member who is a senior or an adult with a disability, starting January 1, 2023.”

Cracking down on house flipping

Beginning in the next year, the Trudeau government is promising to ensure that profits from properties that were held for less than 12 months will be fully taxed. Certain exceptions will apply “for unexpected life events.”

This measure was both part of the Liberal Party’s 2021 election platform as well as the Liberal government’s previous budget.

Ban on Foreign Investment in Canadian Housing

Starting off as a proposal in Budget 2022, the government says it will implement a two-year ban on foreign purchases of Canadian houses. The goal is to ensure that properties are used as homes for people to live in, and not as “financial assets for foreign investors.” The government says it has consulted on regulations that will be presented before Jan. 1, 2023, when the ban will take effect.

Vacant home tax

The idea of a vacant home tax was presented prior to Budget 2022. Though the government announced its intention to implement an annual one-per-cent tax on the value of “non-resident, non-Canadian owned residential real estate” considered to be underused or vacant, the measure was never brought in.

The Liberal government says it is moving forward and “has already this year delivered” on this measure, which aims “to free up homes for Canadians to live in, make the housing market more affordable for Canadians, and to ensure that foreign, non-resident owners of Canadian housing pay their fair share of Canadian tax.”

-With files from The Canadian Press

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