Federal deficit balloons to $61.9B as government tables economic update on chaotic day in Ottawa

December 16, 2024 Canuck

The federal government’s fall economic statement — tabled just hours after Finance Minister Chrystia Freeland quit cabinet and questioned her government’s recent handling of the economy — calls for more than $20 billion in new spending and says last year’s deficit has grown to $61.9 billion.

The government’s long-anticipated fall economic statement, tabled Monday, also pledges $1.3 billion for a border security package over six years — part of Ottawa’s plan to fend off U.S. president-elect Donald Trump’s threat of steep tariffs — although the 270-page document doesn’t explain exactly how that money will be spent.

The day was thrown into disarray when Freeland, who was meant to deliver the statement, resigned from Prime Minister Justin Trudeau’s cabinet. Instead, it was government House leader Karina Gould who tabled the fall economic statement Monday afternoon.

In a letter addressed to Trudeau and posted to social media, Freeland, who has been finance minister since 2020, said she had no choice but to resign after the prime minister approached her Friday about moving her to another cabinet role.

She also took a parting shot at her boss’s handling of the country’s economy, denouncing what she called the government’s “costly political gimmicks” and imploring him to work collaboratively with the country’s premiers to confront Trump tariff threat.

As expected, the document includes the government’s promised GST holiday, which came into effect Saturday and is expected to cost $1.6 billion.

The document does not include the government’s promise to send $250 cheques to working Canadians.

Sahir Khan, executive vice president of the University of Ottawa Institute of Fiscal Studies and Democracy, said that apart from the tax holiday, the document doesn’t have a lot of gimmicks.

“It’s actually probably the first time we’ve seen them pivot from a consumption-oriented, wealth redistribution budget to one that’s investment-focused,” he said.

“It’s still borrowing for this. We’re still increasing debt to do this, but there’s been a pivot.”

In her spring Budget 2024 speech, Freeland laid out guideposts she said would demonstrate the government’s continuing commitment to fiscal responsibility. The first was a promise to keep the 2023-24 deficit at or below $40 billion.

The federal government has blown past that benchmark; Monday’s update posts a deficit of nearly $62 billion for last fiscal year. The deficit is projected to dip down to $48.3 billion for this current fiscal year.

The federal government says that’s due to one-time costs, including $16.4 billion related to Indigenous claims playing out in court and $4.7 billion related to the COVID-19 pandemic. The document doesn’t say which claims the government is paying out.

“Definitely a fiscal surprise on the negative side. Nothing Canada can’t deal with, but definitely a surprise,” said Kahn.

Another government promise was to maintain a declining debt-to-GDP ratio. According to the fall economic statement, the government has kept within that guardrail — barely.

The federal debt-to-GDP ratio in 2023-24 was 42.1 per cent and the government now predicts it will decline to 41.9 per cent in fiscal 2024-25.

“But it’s still probably higher than some people would like,” said Kahn.

Today’s fiscal update comes as Canada navigates choppy waters in its most important trading relationship. Trump has threatened to impose a 25 per cent tariff on imports from Canada and Mexico, citing concerns about border security, migrants and illegal drugs. Tariffs at that level could cripple Canada’s economy.

Vague border plan

The fall economic statement signals that the government is willing to spend more on the Canada Border Services Agency, the RCMP, Public Safety Canada and the Communications Security Establishment, but it’s light on details about how that money will be spent.

The government has suggested it will be buying helicopters and drones to strengthen monitoring of the shared border.

Most of the new investments mentioned in the statement are incentives meant to encourage investment in Canada and address what’s been described as Canada’s productivity problem.

The government says it will spend $17.4 billion to extend the accelerated investment incentive — temporary tax changes that allow companies to write off the value of investments immediately.

Khan called the new spending largely business-oriented and growth-oriented.

“Something we really haven’t seen as a matter of focus for this Liberal government,” he said.

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