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2023 Federal Economic Statement  

Derek Burleton, Deputy Chief Economist | 416-982-2514
James Orlando, CFA, Director & Senior Economist | 416-413-3180  
Likeleli Seitlheko, Economist

Date Published: November 21, 2023




  • A stronger hand-off has given the government greater fiscal space in the near-term, but a downgrade to 2024 growth prospects, some new spending promises since Budget 2023 and higher interest rates lead to a net deterioration in the budget balance, especially in outlying years.   
  • There were virtually no surprises in terms of initiatives. A total of $15.9 billion in new spending measures were announced, including $6.2 billion on improving housing supply and $8.5 billion on industrial supports for EV battery supply chain and other clean economy investments announced since Budget 2023.
  • Despite the upgrade to the medium-term deficit profile, the government’s accumulated deficit is still expected to follow a downward trajectory over the next 5 years. In addition to this objective, the government pledged to run a deficit no larger than 1% of GDP in future years. 

Deficits in a Time of Weakening Economic Growth

Chart 1 shows the government's deficit in the current fall statement compared to Budget 2023 from 2022-23 to 2028-29. It shows that the deficit is widening over time.

In its updated fiscal outlook, the government is benefitting from a stronger starting point, thanks to an $8 billion undershoot of last year’s budget estimate in fiscal 2022-23. However, this improvement gives way to some deterioration in budget balances, especially in the outlying years of the forecast. The government’s expected shortfall this year and next has been held virtually steady relative to the spring budget, before recording a cumulative $20 billion erosion between fiscal 2024-25 and 2027-28. (Chart 1). Notwithstanding this, the government deficit as a per cent of GDP declines through the forecast to roughly 0.5%, in line with Budget 2023. 

The Minister today announced a new fiscal anchor in addition to its long-standing commitment to keep its debt burden trending lower. The fiscal anchor is now for the deficit to GDP ratio to be no greater than 1%.

Changes to the government’s economic projections explain part of the revised fiscal outlook. While the nominal GDP growth forecast has been upgraded for 2023 based on private sector assumptions (from 0.8% to 2.0%), a cleaver has been taken to growth prospects in 2024 (from 3.6% to 2.4%). This latter adjustment is expected to weigh on revenue gains over the next year. These numbers are in line with TD Economics. However, the 4.3% average nominal growth forecast is somewhat more optimistic than ours.  
New policy measures are relatively small, mainly on the spending side of the equation and back-end loaded to beyond fiscal 2024-25. New spending on boosting housing supply and details on previously announced clean economy supports were a focus in today’s FES. These programs amount to $15.9 billion in new spending over 2023-29 and add to the already announced policy actions related to EV subsidies and purpose-built rental housing. Much of this spending has been deferred in the budget until after fiscal 2024-25. 

Despite the lower price tag on new commitments than many observers likely expected, program spending as a percent of GDP is still projected to hold up at above 15% over the forecast horizon, compared to around 14% before the pandemic.

Interest costs are slated to be another significant headwind on the government’s medium-term fiscal plan. The government has revised upwards its assumption on the BoC policy rate (by 100 bps this year and assumes the rate remains 25 bps higher on average over the next four years). As such, debt service charges are expected to rise to just under $60 billion by fiscal 2027-28 compared to the spring budget estimate of $50 billion. As a share of revenue, interest costs are projected to rise from around 1% at the low point during the pandemic to 1.8%. 

There is a lot of risk around these projections. The government’s economic forecast reflects that of a soft landing where the economy avoids a recession. While this base case scenario makes sense given the economy’s resilience over the last two years, should the economy contract in line with the government’s downside scenario, new borrowing requirements would increase dramatically. Deficits as a percent of GDP would then reach a peak of 1.8% in 2024-25, before falling to 0.7% in 2028-29.

Summary of Significant New Measures

Canada’s Housing Action Plan: There were a number of actions to jumpstart the much needed development of Canada’s housing supply, especially in order to keep up with the country’s population surge. The big one is the government providing $15 billion in new loan funding to directly support the building of more than 30,000 new homes. The Affordable Housing Fund, will provide an additional $1 billion over three years (starting 2025-26) to support non-profit/co-op/public housing build 7,000 new homes by 2028. The FES also includes the government tying access to infrastructure funds to provinces’ efforts to increase housing supply, removing the GST from new co-op rental housing, leveraging the Canada Infrastructure Bank to support housing, and cracking down on short-term rentals that are keeping supply off the market. This will amount to $6.2 billion in total spending.

Supporting a Strong Middle Class: These measures included efforts to stabilize prices in Canada by cracking down on corporate predatory pricing, addressing high grocery prices, cutting taxes on mental health, and temporarily pausing the Federal pollution price on heating oil. While these measures only amount to $168 million in spending, they could go a long way to help Canadians’ quality of life, especially if they can reduce inflationary pressures. 

Building an Economy That Works for All Canadians: This includes measures to support the growth of the clean economy sector. The standout item was the detail about the net fiscal impact of the industrial supports for clean technology investments that have been announced since Budget 2023. These deals include the Stellantis-LGES EV battery plant and the Volkswagen EV battery cell plant, which will get production subsidies of up to $15 billion and $13 billion, respectively, from the federal and Ontario governments. The FES estimates that the industrial supports will cost the federal government $8.5 billion over 2023-24 to 2028-29. Additionally, the government has committed $853 million from 2023-24 to 2028-29 to expand eligibility for the 30% clean technology investment tax credit and the 15% clean electricity investment tax credit to include systems that generate electricity and heat from waste biomass. The total spending for these measures is $9.4 billion over 2023-24 to 2028-29.

Bottom Line

Enjoying an improved hand-off into the current fiscal year, the federal government took the opportunity to use some of that wiggle room to deliver on targeted priorities in this update.  Still, with a looming slowdown and the growing weight of higher interest rates, the government has effectively abandoned all hope of running a surplus at any point over the forecast horizon.  Luckily, the government is acting from a position of strength, as it has maintained the best net debt-to-GDP ratio of all G7 nations. While there was some hope that the government would build on this advantage, new spending – even if modest compared to recent post-pandemic budgets and fiscal updates -- means somewhat less dry powder to combat a potential economic slowdown.  

There will be a lot of questions on just ‘how inflationary’ this update will be given Bank of Canada (BoC) Governor Macklem’s recent comments on how the federal and provincial governments are adding to the country’s inflation problem. Clearly, rising spending in the government’s plan doesn’t change that narrative substantially.  Still, its decision to largely stay its hand on any new spending in the current year and/or delay initiatives to later in the fiscal horizon indicates that the government has got the memo. 

The Canadian economy has slowed significantly since the release of Budget 2023 and this trend looks set to continue as elevated household debt limits consumer spending. We anticipate this will result in job losses in early 2024, with the economy flirting with recession. From this standpoint, there is risk that the government’s finances could be in for another hit. And while the government has focused on the expectation that the deficit-to-GDP ratio will decline over the forecast horizon, should the economy falter more than expected, the government’s fiscal position could be tested.


Table 1: Fall Economic Statement 2023 - Summary

[Billions of Dollars, unless otherwise stated]

Note: Totals may not add due to rounding.
Source: Department of Finance, Government of Canada, TD Economics
Fiscal Year 22-23 23-24 24-25 25-26 26-27 27-28 28-29
Budgetary Revenues 447.8 456.2 483.4 502.4 527.4 551.0 573.8
  Program Expenses 438.6 442.2 466.8 484.8 499.4 515.5 534.1
  Public Debt Charges 35.0 46.5 52.4 53.3 55.1 58.4 60.7
Total Expenditures 473.5 488.7 519.2 538.1 554.5 573.9 594.8
Budgetary Balance Before Net Actuarial Losses -25.7 -32.5 -35.8 -35.7 -27.1 -22.8 -20.9
Budget Balance  -35.3 -40.0 -38.4 -38.3 -27.1 -23.8 -18.4
Per Cent of GDP              
Budgetary Revenues 15.9 15.9 16.5 16.4 16.5 16.5 16.5
Program Expenses 15.6 15.4 15.9 15.8 15.6 15.4 15.3
Public Debt Charges 1.2 1.6 1.8 1.7 1.7 1.7 1.7
Budget Balance -1.3 -1.4 -1.3 -1.2 -0.8 -0.7 -0.5
Federal Debt 41.7 42.4 42.7 42.2 41.2 40.2 39.1
Budget Balance - Downside Scenario  -35.3 -45.1 -51.2 -50.6 -36.4 -29.7 -24.2
Per Cent of GDP - Downside Scenario              
Budget Balance -1.3 -1.6 -1.8 -1.7 -1.1 -0.9 -0.7
Federal Debt   41.7 42.7 44.2 44.0 42.9 41.8 40.8

Appendix – Laundry List of Measures from FES 

Canada’s Housing Action Plan 

Some text verbatim from FES

Removing the GST From New Rental Housing: a measure to remove the GST From New Rental Housing, which was announced on September 14, 2023. Its net fiscal impact is estimated to be $4.6 billion from 2023-24 to 2028-29. The FES also announced that co-operative housing corporations that provide long-term rental accommodation would also be eligible for the removal of the GST on new rental housing, provided the other conditions have been met. 

More Financing for Apartment Construction: the Apartment Construction Loan Program will get an additional $15 billion in new loan funding, starting in 2025-26, bringing the program’s total to over $40 billion in loan funding. This investment will support more than 30,000 additional new homes across Canada, bringing the program’s total contribution to over 101,000 new homes supported by 2031-32. The net fiscal impact of the measure is estimated to be $342 million from 2023-24 to 2028-29.

Building More Affordable Housing: the Affordable Housing Fund will get an additional $1 billion over three years, starting in 2025-26. This investment will support non-profit, co-op, and public housing providers to build more than 7,000 new homes by 2028.

Strengthening the Co-operative Housing Development Program: an investment of $309.3 million in new funding for the Co-operative Housing Development Program, which was announced in Budget 2022. In collaboration with the Co-operative Housing Federation of Canada and other co-op housing partners, CMHC is working to launch the co-developed program in early 2024. 

Cracking Down on Non-Compliant Short-Term Rentals: a proposed measure to provide $50 million over three years, starting in 2024-25, to support municipal enforcement of restrictions on short-term rentals. In addition, the federal government intends to deny income tax deductions for expenses incurred to earn short-term rental income, including interest expenses, in provinces and municipalities that have prohibited short-term rentals. Furthermore, the government intends to deny income tax deductions when short-term rental operators are not compliant with the applicable provincial or municipal licensing, permitting, or registration requirements.

Supporting a Strong Middle Class 

Helping More Households Make the Switch to Electric Heat Pumps: a proposal to allocate $500 million over four years, starting 2023-24, to enhance the Oil to Heat Pump Affordability program. The funds for this measure will be sourced from existing resources. Under the enhanced program, eligible households in provinces and territories that partner with the federal government could receive up to $15,000 in federal grants, plus additional support from provinces and territories.

Temporarily Pausing the Federal Pollution Price on Heating Oil: a temporary pause, from November 9, 2023, to March 31, 2027, of the federal fuel charge from deliveries of heating oil while work is underway to replace heating oil furnaces. The net fiscal impact of the measure is estimated to be $0 from 2023-24 to 2028-29.

Removing the GST/HST From Psychotherapy and Counselling: a proposed measure to exempt professional services rendered by psychotherapists and counselling therapists from the GST/HST. The estimated total spending on this measure is $50 million from 2023-24 to 2028-29.

A New Employment Insurance Adoption Benefit: a proposed measure to introduce a new 15-week shareable EI adoption benefit, at an estimated cost of $48.1 million over six years, starting in 2023-24, and $12.6 million ongoing. The benefit is expected to provide approximately 1,700 Canadian families each year with additional time and flexibility as they welcome a new child in their home. Surrogate parents will also be eligible for this benefit. 

Enhancing Employment Insurance Supports for Seasonal Workers: a proposal of up to four additional weeks of EI regular benefits to eligible seasonal workers in 13 economic regions. This new measure is expected to cost an estimated $69.8 million over three years, starting in 2023-24.

Building an Economy That Works for All Canadians 

Expanding eligibility for the Clean Technology and Clean Electricity investment tax credits to include waste biomass: the government has committed $853 million from 2023-24 to 2028-29 to enable systems that generate electricity and heat from waste biomass to qualify for the 30% Clean Technology investment tax credit and the 15% Clean Electricity investment tax credit.  

Clean Economy Industrial Supports: the estimated net fiscal impact of the industrial supports for clean technology investments that were announced post-budget 2023 is $8.5 billion. These include announced investments for projects in the EV battery supply chain such as the Stellantis-LGES EV battery plant and the Volkwagen EV battery cell manufacturing plant in Ontario and the Northvolt battery cell plant in Quebec. 

Supporting Employee Ownership Trusts: a proposed measure to exempt the first $10 million in capital gains realized on the sale of a business to an Employee Ownership Trust from taxation, subject to certain conditions. This incentive would be in effect for the 2024, 2025, and 2026 tax years and is expected to reduce federal revenues by $52 million over the 2023-24 to 2026-27 period. 

Sustainable Finance Action: a proposed measure to provide $1.5 million in 2024-25 to the Department of Finance to support its collaborative work with Environment and Climate Change Canada and Natural Resources Canada to develop a taxonomy that is aligned with reaching net-zero by 2050, which would build on SFAC’s Taxonomy Roadmap Report. The FES also announced that the Department of Finance; Innovation, Science and Economic Development Canada; and Environment and Climate Change Canada will develop options for making climate disclosures mandatory for private companies. 

Delivering the Canada Growth Fund: the FES confirmed that the Canada Growth Fund will be the main federal entity issuing carbon contracts for difference and will allocate approximately $7 billion of its current capital of $15 billion for contracts for difference and offtake agreements. This does not include new spending. 

Effective Government, a Fair Tax System, and a Stable Financial Sector 

Responsible Government Spending: a measure to extend and expand Budget 2023 efforts to refocus government spending, with departments and agencies generating additional savings of $345.6 million in 2025-26, and $691 million ongoing. This measure will generate $2.4 billion in savings from 2023-24 to 2028-29. 

Responsible Investments to Meet the Current Needs of Canadians: a proposed measure to further reduce previously announced investment that remains unallocated or is no longer required, or to delay it where the pace of implementation is slower than originally envisioned. This will result in savings of $480 million over six years, starting in 2023-24. 

Supporting Journalists and News Organizations: an enhancement of the Canadian journalism labour tax credit, which will increase the yearly limit on labour costs that can be claimed per eligible employee from $55,000 to $85,000, and temporarily increase the tax credit rate from 25 per cent to 35 per cent for a period of four years. This measure would cost an estimated $129 million over five years, starting in 2024-25, with $10 million per year ongoing.

Dividend Received Deduction by Financial Institutions: a proposed exception to a measure proposed in Budget 2023 to deny the dividend received deduction in respect of dividends received by financial institutions on shares that are mark-to-market property. The exception will apply to dividends received on “taxable preferred shares” (as defined in the Income Tax Act) and has a net fiscal impact of $215 million from 2023-24 to 2028-29.