Fiscal Discipline and Transparency Lacking in Fall Economic Statement
The Business Council of British Columbia (BCBC) has reviewed the Fall Economic Statement (FES) tabled today by the federal government.
BCBC is concerned the government has missed one of the fiscal targets it set for itself only eight months ago. In its April budget, it committed to three “fiscal anchors” to guide overall spending and taxation decisions in a sustainable manner:
Maintaining the 2023/24 deficit at or below $40.1 billion;
Lowering the debt-to-GDP ratio in 2024/25 and keeping it on a declining track; and
Keeping deficits below 1 per cent of GDP in 2026/27 and future years.
The government now admits it will miss the first metric by over $20 billion. The deficit is projected to be $61.9 billion in 2023/24 and $48.3 billion in 2024/25. The government projects the debt-to-GDP ratio is declining and the projected 2026/27 deficit is less than 1 per cent of GDP, but in both cases only slightly. In our view, a further loosening of fiscal policy can be expected ahead of next year’s federal election which will make it hard for the second and third fiscal targets to be met. Indeed, in the FES’s “downside scenario” they are not met.
Adjusted for population, Canada’s economy has barely grown since 2014. Canada has had the second-lowest growth in real GDP per capita among the 38 OECD countries over the past five and ten years. Private sector activity is very weak. Per person government spending has expanded by 11 per cent since 2014, nearly thrice the rate of per person household spending (4 per cent). Meanwhile, in per capita terms, exports have shrunk by 3 per cent, and capital investment in businesses and residential structures has collapsed by 23 per cent and 14 per cent.
Given the poor state of private sector activity, we are pleased that the FES has taken steps to improve tax arrangements for business investment, reduce red tape, and address interprovincial trade barriers. We welcome improvements to the Scientific Research and Experimental Development (SR&ED) tax incentive program. We also support moves to extend the Accelerated Investment Incentive until 2029. That said, businesses would have even greater confidence about making long-term investments in Canada if tax arrangements applied broadly, simply, and did not come with expiration dates. We also support moves to improve border security. These measures may help alleviate the concerns of the incoming U.S. administration and reduce the threat of damaging U.S. tariffs on Canadian exports.
We reiterate our longstanding concerns (here and here) around the transparency of the nation’s finances. The release of the FES a week before Christmas does not allow proper time for the public to scrutinize the use of their money. Also, Canadians are yet to see the 2024 Public Accounts even though nine months have passed since the end of the fiscal year on March 31. The C.D. Howe Institute rates the federal government as one of the least fiscally transparent among Canada’s senior governments (here).
“Habitual delays in releasing information about the nation’s finances are problematic. They undermine the proper and timely scrutiny of federal spending,” said David Williams, BCBC’s Vice President of Policy.