2024 Fall Economic Statement sees deficit skyrocket, introduces business-friendly measures

Canadians were gifted far more excitement than anticipated yesterday as they awaited the tabling of the pre-holiday 2024 Fall Economic Statement. While they may have expected a grossly inflated deficit (correct) and a raft of new measures designed to save the Trudeau Liberals’ sinking fortunes (correct once again), few would have predicted the abrupt resignation of Finance Minister Chrystia Freeland and her replacement at finance by former Public Safety Minister Dominic LeBlanc.

This was palace intrigue of a level seldom seen in this country.

That dramatic news was followed by the depositing of a giant lump of coal in Canada’s fiscal stocking. Put simply, the federal deficit has drastically exceeded one of Freeland’s previously touted ‘fiscal anchors.’ The federal shortfall for the 2023-24 fiscal year (which ended March 31^st, 2024) sits at a stunning $61.9 billion; Freeland had promised to keep the deficit to $40.1 billion. The reason for most of the deficit overrun, according to the government, stems from costs related to various Indigenous legal claims and related liabilities.

But the good news, according to Ottawa, is that two of the anchors are holding steady. With deficits of $48.3 billion (1.6 per cent of GDP) projected for 2024-25, $42.2 billion for 2025-26 and $31 billion for 2026-27, the annual shortfall is expected to dip below 1 per cent of GDP (one of the anchors) by that later fiscal year, while the federal debt-to-GDP ratio is also projected to decline each year until 2029-30 (the third anchor).

The bottom line is that deficits have far exceeded even the loosest limits imposed by the government and the $24.2 billion in new spending in the Fall Economic Statement indicates that the Trudeau Liberals haven’t read the memo on the need for fiscal restraint. As Freeland pointed out in her resignation letter, a potential tariff war with the Americans could blow a Delaware-sized hole in our economy. It’s time to keep ‘the powder dry.’ But the immediate concern now centres around the federal treasury’s lack of credibility. By constantly overshooting its projections, markets are left wondering if they can believe any fiscal projections made by this government. Perhaps they should view them as aspirational? Whatever the case, it would be fair to argue that the country’s finances are in less-than-optimal shape.

But again, the spending continues unabated. The 2024 Fall Economic Statement included several significant new measures, many targeted at improving affordability and business competitiveness and productivity. They include:

The temporary HST holiday on qualifying goods, now in effect until February 15^th, 2025. The measure is projected to cost $1.6 billion. See our recent blog for the full details. Notably absent from this update was funding for the government’s proposed $250 tax rebate cheques, which failed to gain opposition support in recent weeks. Reports indicate that the Liberals may revive the idea in the New Year if they can gain the needed votes in Parliament to pass the measure
A reinstatement of the Accelerated Investment Incentive, including immediate expensing for “manufacturing or processing machinery and equipment, clean energy generation and energy conservation equipment and zero-emission vehicles. The incentives would apply to qualifying property acquired on or after January 1, 2025, that becomes available for use before 2030.” The measures would then be phased out between 2030 and 2033. The government estimates the cost of the measures at $17.4 billion between 2024-25 and 2029-30

Enhancements to the Scientific Research and Experimental Development (SR&ED) program, including “… increasing the annual expenditure limit on which Canadian-controlled private corporations are entitled to earn an enhanced 35 per cent investment tax credit, from $3 million to $4.5 million; increasing the prior-year taxable capital phase-out thresholds for the enhanced credit from $10 million and $50 million to $15 million and $75 million, respectively; and extending the enhanced refundable SR&ED credit to Canadian public corporations.” The enhancements would take effect immediately

A restoration of the eligibility of capital expenditures for the deduction against income and the investment tax credit components of the SR&ED program. The change would take effective immediately for property acquired on or after the of the Fall Economic Statement
A removal of the 30 per cent rule for investments in Canadian entities to make it easier for Canadian pension funds to invest in homegrown businesses. The government is also considering lowering the 90 per cent threshold limiting municipal-owned utility corporations from attracting more than 10 per cent private sector ownership

$1 billion in funding in 2025-26 for the fourth round of the Venture Capital Catalyst Initiative, along with an aggregate of $1 billion to invest in mid-cap growth companies
An amendment to the Income Tax Act to expand what qualifies as an eligible small business corporation share and to relax certain conditions for the rule to apply. Under the proposal, preferred shares would be allowed to qualify for the rollover, increasing the asset limit of “eligible small business corporations that qualify for investment to $100 million, and to increase the length of the period to acquire new investments to within the year of disposition and one full calendar year following the year of disposition.” The changes would apply to qualifying dispositions on or after January 1^st, 2025
Modifications to the Canada Carbon Rebate for Small Businesses for the 2024-25 and later fuel charge years, such that small businesses with between 1 and 20 employees would qualify for a payment amount that would be equivalent to them having 20 employees; Businesses with more than 300 employees would have their payment amounts gradually reduced as their number of employees reaches 500. The rebate would now be made available to cooperative corporations and credit unions
Consultations to restrict the use of non-compete agreements
A $1.3 billion border security package to boost funding for Public Safety Canada, the Canada Border Services Agency, the Communications Security Establishment, and the Royal Canadian Mounted Police
$597.9 million in funding over three years (starting in 2024-25) for Public Safety Canada and the Royal Canadian Mounted Police for firearm removal and compensation
$189 million over five years for the Black Entrepreneurship Program, which is administered by Innovation, Science, and Economic Development Canada
$451.5 million in funding over five years (starting in 2025–26) for CRA audits and other tax enforcement initiatives
$150 million over three years (starting in 2024-25) for the Global Innovation Clusters and $24 million over two years (starting in 2025-26) for the National AI Institutes to support artificial intelligence commercialization
Up to $500 million over four years (starting in 2025-26) for the Business Development Bank of Canada to provide financing to SMEs to adopt digital technologies

The implementation details of the EV Supply Chain investment tax credit, which would include a 10 per cent “refundable tax credit rate for eligible building property related to three segments of the EV supply chain: EV assembly, EV battery production, and cathode active material production,” which would be available to Canadian corporations
Beginning in April, 2025, an expansion of the Canada Carbon Rebate’s 20 per cent rural top up to Canadians living in census rural areas smaller centres within census metropolitan areas. As a result of the change, the government estimates that an additional 1.6 million Canadians will receive the top up next year
$44.3 million over three years to enable the Financial Consumer Agency of Canada (FCAC) to implement the Consumer-Driven Banking Framework, which is intended to safeguard the financial data of Canadians and small businesses
An intention to implement automatic income tax filing, including a promise to develop legislation to allow the Canada Revenue Agency to automatically file a tax return on behalf of some lower-income Canadians, beginning as soon as the 2025 tax year, while exploring an expansion of automatic tax filing to middle class Canadians with simple tax situations
A commitment to introduce a new refundable tax credit for personal support workers, with details to come
A promise to introduce legislation that would exempt the Canada Disability Benefit from being treated as income under the Income Tax Act
A doubling of the loan limit for the Canada Secondary Suite Loan Program to $80,000. The program is designed to increase the number of housing units by making it less expensive to add secondary suites to existing residences
An acceleration of $2 billion in low-cost financing under the Apartment Construction Loan Program
Making $50 million available from the Affordable Housing Fund over two years (starting in 2025-26) for affordable housing providers to use for pre-development work
$362.7 million over five years (starting in 2028-29) to extend the Federal Community Housing Initiative
An additional $600 million in interest-free loans from the Canada Greener Homes Loan Program to help reduce home energy costs

The Fall Economic Statement also affirmed the government’s intention to proceed with legislation that has been gridlocked in Parliament, including changes to the capital gains and lifetime capital gains exemption, the Alternative Minimum Tax, and several other important measures.

The reality is that the Trudeau government is teetering on collapse. The precariousness of its position was exacerbated by the resignation of Freeland and Housing Minister Sean Fraser on the same day. That came months after a minor caucus revolt flamed out, one that could once again be revived if restless backbenchers sense on opportunity to pounce on a highly unpopular Prime Minister; in the meantime, the opposition continues to call for Trudeau’s resignation.

It’s unclear whether most of the measures proposed in the 2024 Fall Economic Statement will be enacted by this government. What is clear is that Justin Trudeau, and many of the Liberal policies designed to deliver a boost in the polls, are on political life support. The country’s finances—while not necessarily in grave condition—are as unhealthy as ever. Will change come to Ottawa in the New Year, bringing with it a renewed sense of fiscal prudence?

For more information on the 2024 Fall Economic Statement, contact a member of our team.

Armando Iannuzzi, Co-Managing Partner