Trudeau's government unveils fiscal plan with border security spending and optimism amid trade risks
The Department of Finance released Canada’s fall economic statement on Monday, reporting a $61.9bn deficit for 2023-24, as the country grapples with economic uncertainty and political changes.
BNN Bloomberg reports Chrystia Freeland’s abrupt resignation as finance minister earlier in the day delayed the fiscal update’s release.
Freeland’s departure further highlighted divisions in the federal cabinet over fiscal measures like the two-month GST/HST pause and the unresolved $250 workers’ benefit cheques.
Freeland described the economic challenges ahead in her resignation letter, particularly the incoming Trump administration in the US and its threat to impose 25 percent tariffs on Canadian imports.
She urged Prime Minister Justin Trudeau to avoid “costly political gimmicks” and to acknowledge the “gravity of the moment.”
The 270-page fiscal update, tabled by Government House Leader Karina Gould, presents a mixed picture of Canada’s finances.
While the deficit surpasses Freeland’s earlier target of $40.1bn, the statement frames Canada’s economic performance positively, claiming the country has achieved a “soft landing.”
It credits inflation stabilizing at two percent and the Bank of Canada’s decision to lower interest rates as results of the government’s “prudent fiscal management.”
Freeland previously committed to self-imposed fiscal guardrails, including keeping the debt-to-GDP ratio on a downward path and ensuring the deficit-to-GDP ratio remains below one percent by 2026-27.
The fall statement projects the federal debt-to-GDP ratio at 42.1 percent for 2023-24, with forecasts showing it declining to 41.9 percent next year.
However, fiscal policy expert Fred O’Riordan, tax policy leader at EY Canada, cautioned that the government’s outlook may be “overly optimistic.”
Projections are based on private sector forecasts from September, which do not account for Trump’s recent tariff threats.
“The forecast is quite likely overly optimistic, even the downside scenario, in light of the threat of tariffs from the US and how Canada may respond,” he said.
Trump’s tariffs are largely unaddressed in the fiscal update, which instead emphasizes Canada’s policies of “reciprocity” to counter unfair trade practices.
The government plans to enforce reciprocity across federal spending and procurement, including infrastructure investments, trade incentives, and intellectual property measures.
The update does not provide specifics on potential economic impacts of retaliatory tariffs.
The government committed $1.3bn to bolster border security, allocated to Public Safety Canada, the Canada Border Services Agency (CBSA), the Communications Security Establishment, and the RCMP.
However, the statement lacks detailed breakdowns on how the funds will be distributed or implemented.
Despite US pressure for Canada to increase defence spending, the fall update does not include new investments beyond previously announced initiatives.
Canada remains committed to meeting NATO’s two percent target by 2032, but defence spending is likely to remain a contentious issue under Trump’s administration.
The statement expands corporate tax incentives, including adjustments to the scientific research and experimental development tax credit (SR&ED).
O’Riordan welcomed this as a “step in the right direction,” noting it shifts focus from consumption-based measures toward economic growth and investment. The government also extended economic investment tax credits initially set to expire.
The fiscal update outlines four key pillars for economic growth:
- Generational investments like childcare and dental care.
- Securing Canada’s AI advantage.
- Addressing geopolitical risks and uncertainty.
- Investments in industrial transition, including critical minerals.
However, O’Riordan argued the document “likely paints a rosier picture than the reality,” as Canada faces ongoing trade pressures and uncertain global conditions.
Freeland’s resignation and Trump’s tariff threats underscore the challenges ahead for Canada’s fiscal and economic management.
While the government projects optimism, experts remain cautious about the outlook. The coming months will test Canada’s ability to navigate economic headwinds and trade uncertainty.
