Freeland Dodges $40.1 Billion Deficit Target, Shifts Focus to Debt Ratio

Finance Minister Chrystia Freeland signaled a shift in Canada’s fiscal priorities on Tuesday, emphasizing the debt-to-GDP ratio while sidestepping questions about meeting a key deficit target ahead of next week’s economic update.

At a press conference in Ottawa, Freeland repeatedly highlighted the government’s commitment to maintaining its debt-to-GDP ratio at 42.1%, while avoiding direct responses about the $40.1 billion deficit ceiling set last year. 

“In next week’s fall economic statement, you will see that the government is maintaining its fiscal anchor. Specifically, reducing the federal debt as a share of the economy over the medium term,” Freeland told reporters. 

The move represents a potential retreat from one of three fiscal guardrails established in 2023, which included maintaining the deficit target, lowering the debt-to-GDP ratio from 42% last year, and keeping the deficit-to-GDP ratio below 1% by 2026-27. The parliamentary budget officer now projects a $46.8 billion deficit for 2023-24.

The December 16 fiscal update comes amid mounting pressure on the Liberal government, which faces dropping poll numbers ahead of an election that must be held by October 2025. Recent policy moves include a temporary GST holiday and a proposed $250 payment to workers earning under $150,000, though the latter lacks opposition support.

Read: Freeland’s and Trudeau’s Offices Clash Over GST Holiday Plan

The government also unveiled plans to expand housing initiatives, with Housing Minister Sean Fraser announcing doubled loan limits for secondary suite construction to $80,000, available January 15 at two percent interest over 15 years.

“You can’t pick and choose fiscal anchors as you go, and renege on a commitment you made only a year ago,” Robert Asselin, senior vice president of policy at the Business Council of Canada, told Reuters. Bond market analysts suggest prolonged deficit concerns could influence both the Canadian dollar and government borrowing costs.

The update is expected to detail new measures addressing housing affordability and economic growth, though specifics remain under wraps until next week’s presentation.

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