The question facing a government heading into the fall economic statement (FES) is one of scale – whether to make it a ‘mini-budget’ or a ‘fiscal update’. But this year, the question is scope – should the government show fiscal prudence or continue with targeted investments? With recent actions suggesting the government would prefer both, this fall statement risks becoming one of contradiction, at a time they can least afford it.
The government’s most recent attempt at fiscal prudence has been led by Treasury Board President, Anita Anand, brandishing newly sharpened cost-cutting scissors. To date, Minister Anand has identified $500 million in yearly savings, with the goal of finding $15 billion over five years. In a headline, that sounds like a lot of money; when next to $500 billion in yearly spending? Not so much. This begs the question, why bother? If fiscal prudence is what you seek, perhaps ditch the half-hearted exercise.
The FES is also likely to show a slowing economy. And while the dreaded ‘recession’ word will not make an appearance, the fiscal outlook is expected to be worse than Budget 2023 projections. This reduced fiscal room may prove challenging for the government to live up to its own self-imposed objectives: creating good jobs, building more homes, and making life more affordable for Canadians. But, the lack of fiscal room was easily predicted. The government has now boxed itself in promising ambitious goals that require significant funding at a time when the economy is contracting, and this same government is cutting.
Take the recent announcement supporting a major lithium-ion battery cell manufacturing facility in Maple Ridge, British Columbia. The new facility will create and secure 450 jobs, hugely important for the local community and to British Columbia’s role in Canada’s world-leading battery supply chain. But at a cost to federal coffers of over $200 million, not to mention $80 million from the province, one wonders how the government can simultaneously claim fiscal prudence.
Some say this is the cost of doing business post-Inflation Reduction Act. For Canada to compete on the global stage, attract the companies building the future economy, and secure the talent to staff it, Canada must make outsized investments. Indeed, this is the argument the government has been making in the face of an Opposition (and at times central bank) message of economic discipline.
Trying to balance fiscal prudence with big spending risks appearing indecisive, undermining their political narrative with voters. This tug-of-war is a familiar government struggle. Usually, the finance minister favours prudence while the PMO leans toward spending. Past clashes show how messy these conflicts can become. Despite a seemingly united front, for now, signs of disagreement, like a delayed FES, raise doubts about everyone being on the same page.
In years past, the government would schedule the FES before a Parliamentary break week to give MPs something to talk about when back in their ridings. Instead, the government will now deliver the FES at the start of what is known as ‘silly season’ – the long, non-stop run to the Christmas break – missing out on the chance to connect with constituents and talk up government plans. Could this be a missed opportunity for a government searching for a win?
The theory is given further credence when one looks at the government announcements made last week. Massive housing announcements were made right across the country, in politically important regions like Atlantic Canada and, interestingly, Toronto. They came fast and furious and can be expected to appear in Tuesday’s FES.
Unfortunately for the government, and likely because of the lack of FES-narrative wrapping, there was little to no news coverage of the announcements. A missed opportunity on a topic that is top-of-mind for voters.
Which leaves us back where we started – what is the government’s message tomorrow and can it back it up? One thought is that the government decided to get the good news out in the days leading up to the FES, knowing the worsening fiscal picture would cloud any good news. And normally that would be fine if the good news was covered. But international events, and the Prime Minister’s own statements, kept getting in the way.
No matter which road the government chooses, frugality or spending, they will have their critics. The last thing this government can afford heading into tomorrow’s FES is a muddled communications approach – it’s time to pick a lane and own it.
