Trudeau government fall update after Freeland’s resignation shows $61.9-billion deficit
The Liberal government’s fall economic update – which was tabled just hours after Finance Minister Chrystia Freeland’s surprise resignation from cabinet – shows Ottawa overshot its self-imposed deficit cap by more than $20-billion.
Ms. Freeland pledged last year that she would keep the deficit at or below $40.1-billion, but the update tabled Monday puts the figure at $61.9-billion for the fiscal year that ended March 31.
The government says most of this overshoot is because of one-time costs tied to booking contingent liabilities for settling various Indigenous legal claims.
For the current 2024-2025 fiscal year, the update projects a $48.3-billion deficit. Ms. Freeland’s April budget had projected a $39.8-billion deficit for this year.
The update shows the size of the annual deficit declining each year through to the 2029-2030 fiscal year. However, the total deficit revisions add up to more than $45-billion in additional deficit spending over the six fiscal years ending in 2028-2029.
Ms. Freeland announced shortly after 9 a.m. via a letter to Prime Minister Justin Trudeau, which she posted to social media, that she was resigning as finance minister and deputy prime minister.
The political bombshell delayed the release of the update as Mr. Trudeau and his remaining ministers met behind closed doors.
The update was tabled in the House of Commons by Government House Leader Karina Gould, without an accompanying speech.
Copies of the update had remained covered with black blankets for much of the day in the media lockup in Ottawa, where journalists are provided copies under embargo until it is made public. The documents were ultimately shared with the media at 1:45 p.m., almost four hours late and a little over two hours before the report was scheduled to be tabled publicly in the House.
In her letter, Ms. Freeland wrote that she and the Prime Minister had been “at odds” over the past number of weeks.
The letter then suggests that she had argued in favour of less spending and against “political gimmicks,” which is presumably a reference to the government’s recent announcement of a two-month targeted GST holiday and a pledge to send most working Canadians $250 cheques in April.
Mr. Trudeau announced a two-part, $6.28-billion plan last month that included $4.68-billion to send most working Canadians $250 cheques in April and a $1.6-billion plan for a two-month GST holiday on select items, which took effect Saturday.
Pollster Nik Nanos recently described the two policies are “political duds,” based on a survey conducted for The Globe and Mail.
The NDP supported the GST break but has held off supporting the cheques, saying they should go to more Canadians, including retirees and people with disabilities.
Only the $1.6-billion GST break was accounted for in Monday’s update. Two senior government officials said in the lockup that the cost of the cheques was not booked because the government has not found support for the measure in Parliament. One of the officials said the government remains open to the idea if another party signals its support.
The Globe is not identifying the officials because they briefed journalists on a not-for-attribution basis inside the lockup.
NDP Leader Jagmeet Singh called on Mr. Trudeau to resign Monday, saying the Liberals are fighting themselves instead of fighting for Canadians.
Conservative Leader Pierre Poilievre reacted to Ms. Freeland’s resignation by saying the Liberal government has lost control and should call an immediate election. He also urged the NDP to stop supporting the Liberals in Parliament.
In last year’s fall economic statement, Ms. Freeland laid out three fiscal objectives to guide spending: keeping the deficit for the 2023-2024 fiscal year at or below $40.1-billion; lowering the debt-to-GDP ratio in 2024-2025 and keeping it on a declining track thereafter; and keeping deficits below 1 per cent of GDP in 2026-2027 and in future years.
Monday’s document shows the debt-to-GDP ratio on a slight downward trend over time, reaching 38.6 per cent in 2029-2030, down from 42.1 per cent in 2023-2024.
It also shows the deficit as a percentage of GDP shrinking to 0.9 per cent by the target date of 2026-2027, down from 1.6 per cent in the current fiscal year and 2.1 per cent last year.
In the document, the government says it “will continue to focus on the objective of maintaining the deficit below 1 per cent of GDP beginning in 2026-2027 and future years,” in addition to its fiscal anchor of keeping the debt-to-GDP ratio on a declining trend.
The document included several new policy announcements.
Following a package of business-focused tax incentives that Ms. Freeland announced Friday, the update includes a plan to extend the Accelerated Investment Incentive at a cost of $17.4-billion over five years.
The program allows companies to write off a large share of the costs of newly acquired capital assets.
The update also includes $1.3-billion over six years in new spending on a “comprehensive border package,” with funding going to Public Safety Canada, the Canada Border Services Agency, the Communications Security Establishment and the Royal Canadian Mounted Police.
Bank of Nova Scotia economist Rebekah Young said much of the document’s contents had been signalled in advance. She said it is essentially a placeholder, given that more spending promises can be expected in 2025, which is an election year.
Ms. Young also said she has questions about the large revision to last year’s deficit tied to Indigenous liabilities.
“I’m surprised that they hadn’t anticipated that,” she said.
Sahir Khan, co-founder of the University of Ottawa’s Institute of Fiscal Studies and Democracy, said he was pleased to see the update’s measures on business-focused policy to boost investment and productivity.
However, he said Ottawa’s fiscal targets were “soft” to begin with, so exceeding the deficit cap sends a negative message.
“This is still a big-spending government,” he said.
This article was first reported by The Globe and Mail
