Federal Fall Economic Statement 2024: Long on Drama. Short on Fiscal Credibility.

The Fall Economic Statement (FES) 2024 took a back seat to Canada’s Deputy Prime Minister and Finance Minister, Chrystia Freeland, resigning from Cabinet shortly before the FES 2024 was set to be released. This delayed the sharing of embargoed copies by nearly four hours. As of the time of writing, Chrystia Freeland was replaced by Dominic Leblanc, Minister of Public Safety.

The fiscal numbers in the FES were even worse than feared. While we expected the Government of Canada (GoC) to run larger deficits than anticipated in Budget 2024, nobody estimated the federal deficit to be a whopping $61.9B. This breached one of the federal government’s deficit-related fiscal anchors—maintaining the 2023–24 deficit at or below the Budget 2023 projection of $40.1B—by a wide margin. However, the GoC expects to maintain a declining deficit-to-GDP ratio in 2024–25 while keeping deficits below 1% of GDP in 2026–27 and future years—the other deficit-related fiscal anchor. But it can thank upward revisions to nominal GDP for that as opposed to prudent fiscal stewardship.

Program spending is expected to increase by $28.6B over six years in the FES 2024 relative to what was in Budget 2024, $24.2B of which is new spending. With program spending moving higher that previously anticipated, it comes as no surprise that public debt charges are also adding more to the deficit than in Budget 2024.

On the revenue side, the federal government has booked $2.4B from cracking down on tax evasion and another $0.6B from stronger penalties for financial crimes over the next six years. This is the kind revenue measure that often gets included in the fiscal forecast to make the numbers work but rarely gets realized, so it’s best to view with caution.

Taken together, the debt-to-GDP ratio is expected to gradually decline but not as quickly as previously expected. As a result, the federal government expects to meet the threshold for its third and final fiscal anchor: lowering the debt-to-GDP ratio in 2024–25 relative to the FES 2023, and keeping it on a declining track thereafter. As a result, when compared to other major advanced economies, Canada remains one of the cleanest dirty shirts in the fiscal laundry basket.

We’re skeptical that the federal government will be able to meet those fiscal anchors it has yet to breach. Our more bearish outlook starting in 2026 accounts for likely tariffs on US imports, slower population growth and the impending mortgage renewal wall, and looks a lot more like the downside economic forecast presented in the FES 2024. And given spending edges higher with each new fiscal plan, tax revenues will need to rise to offset additional spending and/or deficits will be larger, leading to a further accumulation of debt.