The Top Line
The Federal Government today released its 2016 Fall Economic Statement (FES). A standard item on the Government’s fall agenda since the mid-1990s, the FES sets the stage for the next budget and offers a public assessment of the Government’s progress on fiscal issues.
The Finance Minister framed the 2016 FES within the context of a “low global growth environment” and the shifting of global trade to Asia. The Government sees these developments as critical external factors that are influencing Canada’s fiscal framework.
Notably, the 2016 FES was presented in the House of Commons with a budget tabling-style speech by Finance Minister Bill Morneau. This provided a chance for the Minister to highlight the Government’s future spending and policy plans, as opposed to a bare bones statement focused on the raw economic data.
The 2016 FES showed that the Liberal Government is committed in the near and long-term to its strategy of using public infrastructure expenditures as a tool for growing the economy. The Liberal Administration believes that such investments will create jobs and ultimately improve quality of life for middle-class Canadians and future generations. With that in mind, the FES confirmed the Liberal plans for infrastructure spending over the coming years, while also announcing a new Canada Infrastructure Bank to leverage private investment in public infrastructure.
The FES also introduced two new elements to the Government’s plan for economic growth: bringing more skilled immigrants into the country and attracting foreign investment. The Government views those measures as effective complements to the Government’s infrastructure strategy.
Economic and Fiscal Outlook
The FES announced that projected growth for 2016 is 1.2% – or 0.2% lower than was expected in Budget 2016. Much of the downward revision is due to the negative impact of the Fort McMurray wildfire on Canada’s economic output, with a rebound in economic output of 3.4% expected in the third quarter. That said, Canada’s projected growth for 2017 and beyond has also been revised downward by an average of 0.2% per year. Much of the downward revision is due to crude oil prices rising more slowly than was expected in Budget 2016.
The 2016 FES also presented projected annual deficits. Notably, the Government removed the entire $6 billion contingency fund from both its short-term and long-term deficit projections. In the short term, with that contingency removed, deficit projections are lower than those presented in Budget 2016. However, in the long term the planned deficits will become higher than projected.
Investments in Infrastructure
The Liberal Party’s infrastructure spending plan was a key plank in its 2015 election platform and the 2016 Budget. The 2016 FES confirms that the Government remains committed to spending on infrastructure, with the belief that such investments will ultimately grow the economy in the long run.
In particular, the Finance Minister highlighted that the Government will spend some $81 billion on public transit, green and social infrastructure, and transportation infrastructure that supports trade. A portion of that amount will be specifically directed at rural and Northern communities.
The Finance Minister also used the FES to announce that the Government will create a Canada Infrastructure Bank, which will spend “at least $35 billion” in investments by private sector bodies and Canada’s pension funds on “transformative” infrastructure projects. The Government believes that such a bank will create jobs and supplement every $1 of Government spending on infrastructure with $4-5 from private sector and pension sources that have not previously been leveraged by the Federal Government.
Immigration and Foreign Investment
The FES emphasized Canada’s immigration system and attraction of foreign investment as tools to complement the Government’s infrastructure expenditures.
The Finance Minister announced that the Government will make changes to Canada’s immigration procedures to support a new Global Skills Strategy, which will aim to attract top talent and expertise from around the world in an effort to help Canadian businesses scale up and compete globally, while remaining based in Canada.
The Government will also seek to attract more foreign investment to Canada through the inauguration of the Invest in Canada Hub, which will include “sales force” staff employed to promote Canada abroad.
Finally, the Finance Minister committed the Government to a more transparent and open budgetary process by promising more independence to the Parliamentary Budget Officer and Chief Statistician of Canada. The Minister also committed to reforms in the House of Commons to “help make the process of reviewing government spending more open, transparent and accountable.”
Both main Opposition Parties are allocated time for immediate response to the FES in the House.
Conservative Finance Critic Gérard Deltell said that the Government has failed to create any permanent new jobs with its infrastructure spending to date and claimed that the Government has failed to properly account for some $32 billion in future infrastructure spending. He argued that the Government is embarking on a long-term plan of “reckless” expenditure and new taxes.
Meanwhile, New Democratic Finance Critic Guy Caron criticized the removal of the contingency fund from the Government’s deficit projections. He also argued that privatization of assets (including via private investments through the new Canada Infrastructure Bank) will result in higher consumer costs through tolls and user fees.
What This Means to You
The 2016 FES should be viewed as a confirmation that the Liberal Government will stay the course with its strategy of using infrastructure spending to stimulate economic growth. Added to this will be the recruitment of highly-skilled immigrants and a concerted push for foreign investment. All these initiatives act on recommendations made by the Minister’s Advisory Council on Economic Growth.
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