Federal Fall Economic Statement 2023: A Fiscal Forecast Only a Contortionist Could Love November 21, 2023

As expected in our federal Fall Economic Statement 2023 (FES 2023) preview noteExternal link. This link will open in a new window. , the Government of Canada plans to run larger deficits than anticipated in Budget 2023. While anticipated to be little changed from Budget 2023 in the 2023-24 fiscal year, at around $40B, the deficit is now projected to be $9B greater on average annually in the four fiscal years starting in 2024-25. Indeed, the federal government has abandoned all hope of running a surplus at any point over the fiscal planning horizon.

Program spending is expected to be higher than in Budget 2023, coming in $8.2B greater on average annually in the four fiscal year starting in 2024-25. This is the result of new measures announced for industrial subsidies and building more affordable housing, which has been only partly offset by as-of-yet undisclosed savings. Larger deficits are also the result of higher public debt charges. Higher interest rates look to be increasing the deficit by roughly $6.1B on average annually relative to Budget 2023.

On the revenue side, the weaker economic outlook (and other fiscal developments since Budget 2023) is expected to weigh on the budget balance by about $3.7B on average annually. This was further reduced by removing the GST from new rental housing. However, revenues in aggregate were revised higher thanks to greater planned proceeds from the pollution pricing framework resulting from higher expected emissions and unspecified other revenues.

Taken together, the debt-to-GDP ratio is expected to increase from an estimated 41.7% in the 2022-23 fiscal year to 42.4% in 2023-24 and then again to 42.7% in 2024-25. After that, debt as a share of the economy is expected to track lower. Having announced somewhat dubious 'fiscal anchors' in FES 2023, the federal government took credit for managing to keep the debt-to-GDP profile at or below that published in Budget 2023. This despite the ratio having come in much better than expected in the 2022-23 fiscal year.