All eyes are on the deficit as the Liberals unveil fiscal update

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OTTAWA — Finance Minister Chrystia Freeland is preparing to unveil the Liberal government’s latest fiscal update today, with all eyes on whether the government will stick to its commitment of having a deficit no larger than $40.1 billion. Already, the finance minister is backing off her government’s promise to send “tax rebate” cheques to workers in the spring as a way to limit the red ink.

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Freeland had promised the $40.1-billion limit when she presented last year’s fall economic statement, billing it as one of the “fiscal anchors” the Liberal government would adhere to as it managed the books. She reiterated that promise when she presented her budget in April.  

While she said last week that the government is on track to meet its objective of reducing the federal debt-to-GDP ratio, the minister has remained tight-lipped about whether it will keep its promise of keeping the deficit at or below that $40.1 billion promise. The parliamentary budget officer estimated in October the deficit would be around $46 billion.

Just last week, BMO chief economist Douglas Porter predicted that “Ottawa’s deficit targets are toast.” He forecast that the deficit for the current year could be $10 billion larger than projected, adding that was before the government announced billions more in affordability giveaways.

With Canadians scheduled to go to the polls no later than October 2025, the plan presented on Monday will be one of the last from the Liberals before the election.

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Freeland will unveil the economic plan at a time of rising uncertainty, particularly over U.S. President-elect Donald Trump’s threat of imposing a 25-per-cent tariff on Canadian goods because of his concerns around border security and the flow of fentanyl into the U.S. Premiers and industry leaders have called on Ottawa to present a plan to mitigate Trump’s threat, warning it would spell disaster for Canadian businesses should Trump follow through when he assumes office in January 2025.

The Liberals are expecting to spend hundreds of millions of dollars more bolstering the presence at the border, with details of this spending expected to come in Monday’s fiscal update.

One measure not expected to be included was the government’s promise to send nearly 19-million Canadians a $250 cheque next spring. In an exclusive scoop, National Post reported Sunday that the government is backing away from that plan for the time being, despite having announced it last month as one of two key affordability measures.

The initiative, which was presented as part of the Liberals’ efforts to try and soothe Canadians’ cost-of-living anxieties, was estimated to cost around $4.7 billion. It had found no opposition support within the minority Parliament, which it needs in order to pass. Federal NDP Leader Jagmeet Singh had called for the eligibility to be expanded to include seniors who are not working, as did the Bloc Québécois. The Opposition Conservatives have panned the spending as inflationary.

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The other key affordability measure was a temporary GST/HST holiday on items ranging from restaurant meals and wine, to Christmas trees, children’s clothing and groceries. It took effect on Saturday and is set to last until February 2025, at a cost to the federal government of $1.6 billion in revenue. The parliamentary budget officer has warned that could rise to $2.7 billion if provinces with a Harmonized Sales Tax look to Ottawa to recoup the costs of the lost tax revenue.

Last Friday, Freeland announced the fiscal update would also include reforms around pension fund investments, such as removing the 30-per-cent cap on investments in one company and making changes to an investment tax credit, which she said was being done to help businesses grow.

That comes amid concerns from the private sector about the country’s levels of business investment and overall economic competitiveness.

She also said she would have more to say on Monday regarding a report that the federal government sold its shares in Air Canada that it purchased during the pandemic to keep the airline afloat.

National Post
staylor@postmedia.com

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