Canada’s 2021 Economic and Fiscal Update

December 15, 2021

In her remarks to reporters this Wednesday, Finance Minister Chrystia Freeland was clear.  “This update is what it says on the title page: It is an economic and fiscal update. This is not the master plan for the Canadian economy going forward. That will be in the budget.” In other words, we shouldn’t expect to see much “new” in the government’s fall fiscal update.

And yet, there were some points worth noting in this “steady as she goes” check-up on Canada’s financial affairs.  

Ms. Freeland’s update predicts that the federal debt-to-GDP ratio will decline more quickly than previously expected, due in part to positive economic trends like strong employment numbers and steady consumer confidence, and in combination with lower-than-projected spending in some areas. Deficit projections have dropped from $154.7 billion to $144.5 billion. Some argue this has more to do with inflation than anything else, but this more optimistic outlook allowed the Liberal government to add two new budget items including $31 billion on pandemic-related spending over six years and $40 billion on addressing Indigenous issues.

As RBC’s senior economist Josh Nye noted, this update does point out “..the extent to which a stronger economy can improve the fiscal outlook.” BDC’s Vice President of Research and Chief Economist Pierre Cléroux suggests the government now needs to be, “…bringing forward investment projects to provide a tailwind to Canadian economic growth.”

Inflation rates and the ongoing uncertainty of the pandemic remain looming challenges for not just Canada but the world. But if you look for those potential investment projects within the Liberal election commitments, there are opportunities in several key sectors, particularly renewable energy.

If you recall, the Liberal Party ran on a platform that included a detailed plan to tackle climate change and protect the environment. This plan was positioned as an extension of what they had already begun. For example, they said they would continue to invest in the Net Zero Accelerator Fund, re-committing the $5 billion in new spending outlined in the 2021 Budget. They also promised to develop an, “investment tax credit of up to 30 percent for a range of clean technologies, including low carbon and net-zero technologies”. And for our fossil fuel-reliant provinces, commitments were made to ensure “a just transition” and nearly $4 billion new funding to support economic diversification and develop clean energy opportunities in Alberta, Saskatchewan, and Newfoundland and Labrador.

As noted in the fall fiscal update, recent climate change events, including the devasting flooding and wildfires in British Columbia this year, have not only significantly impacted residents, but they have also laid bare the fragilities of critical national infrastructure and supply chains, real risks to our economic recovery and growth. In response, the Finance Minister wrote, “[t]he green transition of the global economy is underway. It is one of the great economic opportunities, and one of the great challenges, that lies before us.”

After the last couple of years, it certainly feels there is little time to waste.