Economy

No 'broad handouts': What economists expect from today's fiscal update

Government faces delicate balancing act in addressing housing crisis, rising cost of living

Finance Minister Chrystia Freeland has signalled that Ottawa will focus on housing and the rising cost of living when it tables its fall economic statement on Nov. 21, but economists say the government faces a delicate balancing act when it comes to how far it can go to tackle those challenges.

The two issues have been top of mind for Canadians, as high inflation, elevated housing costs and soaring interest rates leave many struggling financially. The latest version of an ongoing Nanos survey found inflation, jobs and the economy, and housing were the top three concerns of voters from among a list of 10 issues that also included health care, war and peace, and climate change.

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In a move directed at the housing file, Finance Minister Chrystia Freeland will announce tax changes designed to curb the use of Airbnb Inc. and other short-term rental services in regions of Canada where those platforms are restricted, according to media reports. The government will prohibit property owners from deducting expenses on short-term rentals in areas where those services are already limited by other levels of government, Montreal’s La Presse and the Toronto Star said.

Further, the government is also expected to announce billions in loans available for homebuilders and earmark a fund for affordable housing.

The federal government is set to announce $15 billion in low-cost loans for builders, which the official says will lead to the construction of 30,000 new apartments.

The fiscal update will also include $1 billion toward affordable housing, which will support non-profits and social housing organizations.

Freeland is also expected to lay out a new Canadian mortgage charter that will outline what Canadians can expect from their financial institutions when they are renewing their mortgages.

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Housing is an acknowledged national crisis, Randall Bartlett of Desjardins Group said in a written submission to the House of Commons Standing Committee on Finance, and released on Nov. 20.

“All levels of government bear some responsibility for the current crisis,” Bartlett wrote in the submission noting that not only is there not enough housing but the kind of housing people need, such as semi‑detached, row houses and low‑rise apartments, are not being built.

The Montreal-based finance group released a list of policies and initiatives to tackle the housing dilemma, including reducing approval delays for housing, eliminating exclusionary zoning, changing density bylaws, deferring, cutting or eliminating property taxes or development charges on new rental construction and offering financial incentives such as low-interest loans.

“There is no silver bullet that will solve Canada’s housing crisis. Instead, it is a combination of different policies introduced by all levels of government in a co-ordinated fashion that will help to increase homebuilding,” Bartlett said in the submission.

There is no silver bullet that will solve Canada’s housing crisis

Randall Bartlett, Desjardins

At the housing crisis escalates, the Liberals are badly trailing the Conservatives in polls with the most recent weekly Nanos survey showing that 33.7 per cent of Canadians prefer Pierre Poilievre as prime minister compared with 21.2 per cent for Justin Trudeau.

That has led some to predict the Liberals will use the update to try and make up lost political ground while still aiming to maintain a semblance of fiscal responsibility as the economy cools.

“Trudeau and the reigning Liberal government will try to claw back political support from Canadians driven to despair on affordability,” National Bank of Canada economists Taylor Schleich and Warren Lovely wrote in a preview note Nov. 17.

The pair believe deficits for this year and further out will come in slightly higher than originally forecast in the budget tabled in March, but they don’t expect new “broad handouts” like the grocery rebate in Budget 2023 that provided a one-time payment to qualifying Canadians in July to help with the rising cost of food.

Desjardins’ Bartlett said Canada is seen as “the cleanest dirty shirt in the fiscal laundry basket,” meaning its deficits are not as severe as those in the U.S. and other countries, and that Ottawa therefore has some wiggle room to increase spending.

He expects Ottawa to do just that, “given the deluge of uncosted announcements recently.”

But Desjardins warned that deficits and debt outlooks from March have steadily been chipped away at by wage settlements with public servants, unrealized revenue and savings, a possible national pharmacare program and the cost of recently announced relief from carbon taxes for residents in Atlantic Canada who heat their homes with oil.

“Together, these have helped to further erode the federal government’s fiscal room, but by how much we can’t be certain,” Bartlett said.

With elevated borrowing rates pushing the cost of debt higher, Bartlett suggested Ottawa should use the update to “outline fiscal anchors and stick to them.”

Royal Bank of Canada economists expect housing supply to be the focus of the fiscal update, according to a Nov. 17 note.

RBC also warned that Canada’s slowing economy could influence the update.

“A slower economic growth backdrop is also weighing on government purchasing power with the Parliamentary Budget Office estimating that the deficit for the current fiscal year will come in $6-billion wider than expected in the last budget,” the bank said.

In October, Freeland said the update would be limited in scope.

“It will be focused on building more new homes faster and making more new homes available for Canadians to live in, on making living more affordable for Canadians and on continuing to deliver on our fiscally responsible economic plan,” she said.

In the spring budget, the deficit for 2023 was projected at $40.1 billion, but recent updates from the parliamentary budget officer forecast the deficit could rise as high as $46.5 billion due to higher interest rates and lower revenue as cash-strapped Canadians spend less, and on a series of housing announcements made with municipalities in the country.

— With additional reporting from Bloomberg and The Canadian Press

• Email: gmvsuhanic@postmedia.com


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