Fiscal plan to focus on housing, living costs

Slumping Liberals seek to recapture public trust as party prepares to unveil fall economic statement

As they’re being pummelled in the polls and an increasing number of Canadians are rejecting the idea that Prime Minister Justin Trudeau’s Liberals are still capable of managing everything from the economy to climate change, the government will seek Tuesday to recapture some public confidence.

Finance Minister Chrystia Freeland will unveil what’s called the “fall economic statement,” a midyear fiscal update that’s a mix of reporting on the government’s expenditures and current financial picture, a projection of how that picture might evolve in the coming months and any programs the government sees fit to introduce.

The “FES” — as it is known — is not usually as big as a budget, yet with the Liberals in a slump, Tuesday’s document will be closely watched for what it says about the current state of the government.

Here’s how it might play out.

What’s at stake?

A government source has told the Star that this year’s FES will be less of a new spending blueprint and much more an update on what the government has done since the spring budget. However, it can also be used as a place for the government to unveil major new measures to address the pressing economic question of the day. In 2020, for example, that was the COVID-19 pandemic.

The major issue facing the government is cost-of-living concerns. The question of who is responsible — and who can ease — that pressure depends on perspective.

Both the Opposition Conservatives and New Democrats say high grocery bills, housing costs and other rising prices are the fault of a Liberal government either spending too much — if you’re a Conservative — or not on the right things, if you’re the NDP.

Then there’s the Bank of Canada, which is responsible for setting interest rates.

In October, it held interest rates steady and forecast inflation would average about 3.5 per cent through the middle of 2024 and ease to two per cent in 2025.

While that’s the target, as bank governor Tiff Macklem noted recently, the choices the federal government makes also play a role.

The more the government chooses to spend, the more it risks driving up inflation, which in turn drives prices higher.

Macklem told a parliamentary committee recently it would be helpful if the monetary policy — which he oversees — and fiscal policy, which is the purview of the federal government — were “rowing in the same direction.”

What that means to a degree is fiscal restraint — no more spending.

That’s unlikely to entirely be the case come Tuesday; the government still has unfilled promises from its last budget and has signalled repeatedly it is primed to spend, at the minimum, on housing. But Freeland told reporters recently that in the FES, one of the ways it can support Canadians is being fiscally responsible.

“It’s a hard balance to strike: making the necessary investments, on one hand, supporting Canadians as we need to do, and at the same time being fiscally responsible,” she said.

“But it’s a balance that we’re committed to striking.”

What are the Liberals planning to include in the FES?

Freeland, and other ministers, have framed the coming fall update as a plan that will focus on affordability and housing.

The Star reported Sunday that one thing the government will introduce in the FES is measures to make short-term rentals less profitable for their owners, by ending tax deductions for rental expenses in places where there are already restrictions on short-term rentals of the kind found on Airbnb.

There are also demands for the federal government to top up and adjust existing funding programs.

Take, for example, the federal lands initiative, launched in 2018 with a $200-million commitment over 10 years to support turning government-owned land into housing. As of the end of September, $120.40 million has been committed, and 3,100 of the 3,936 units promised were under development. At that rate, the program will be depleted long before its deadline, yet there is still much more federal land that could be freed up.

When it comes to affordability, the fall economic statement will be landing at the same time as a key benchmark: the consumer price index, which tracks the cost of items for Canadians.

The Liberals had promised action to bring down food prices, and whether they have in fact fallen could be showcased in the Tuesday numbers from StatCan.

A source told the Star that one area the government will take action is on predatory pricing, which involves more changes to existing competition laws.

Meanwhile, the parliamentary budget officer has noted that some 40 per cent of the funding promised in last year’s federal budget has yet to be allocated, so some of that could show up on Tuesday.

Among the outstanding items: how a new tax credit for green investment will be structured, and promises on defence spending.

Where the money will come from is also up for debate.

Restraint could mean not announcing any new spending but instead taking from other programs. In the 2023 budget, they did promise to “refocus” $15.4 billion over five years starting this year, and $4.5 billion annually thereafter.

A recent example of how they’re shifting money is the increase in the carbon-levy rebate people in rural areas receive. To pay for it, the government has said it will dip into the funds reserved to compensate small businesses and other groups.

There’s also the question of whether the government will simply give up on some of the things it has promised to do — and how or when they’ll tell Canadians what those things are.

Observers of the federal financial picture note not just the deficit as a line item to watch — last month, the parliamentary budget officer projected it will rise to $46.5 billion in 2023-24, up from an estimated $38.7 billion for 2022-23.

There’s also the question of the government’s debt load, with high interest rates meaning it is costing the government more to borrow.

The FES is the government’s midyear spending snapshot, but that doesn’t mean the Opposition parties don’t have or want a say.

On Friday, Conservative Leader Pierre Poilievre laid out what he wants to see: the cancellation of plans for any future hikes in the carbon price, the budget balanced and for the government to adopt his housing plan which ties housing funds for cities to housing starts.

Poilievre called the Liberals’ existing housing strategy a “photo-op fund” that announces projects already planned, and said the money is going to build bureaucracy instead.

“Justin Trudeau must reverse the inflationary policies that have driven people out of their homes, driven interest rates up and caused mass despair and misery,” he said.

NDP Leader Jagmeet Singh, whose party is currently propping up the minority Liberals via a supply-and-confidence agreement, has already said what he doesn’t expect: any sign of funding for a national pharmacare plan.

Getting legislation on that program by year’s end is one of the major outstanding elements of the deal, but the clock is running out.

But he wants to see housing investments targeted at affordable housing, not just to any housing, which he says is where too much money is currently going, and more work to strengthen consumer protections against price gouging and price fixing. “We are always looking for ways to use our power to get this government to deliver and we’re going to see what this government does when it comes to the fall economic statement.”