Let’s talk about the 2024 Fall Economic Statement (FES), the kind of thing most Canadians skim past because, frankly, it’s packed with charts and numbers that look more like a corporate PowerPoint presentation than a transparent economic roadmap. But here’s the thing—a closer look reveals some serious issues that aren’t immediately obvious. Let’s unpack this over a coffee, shall we?
The Pension Fund Illusion
First off, the FES includes assets from the Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) in its net debt-to-GDP calculations. Sounds good, right? Not so fast. These funds aren’t government piggy banks. They’re for pensions, not paying off federal debt. By including them, the government artificially lowers the net debt-to-GDP ratio, making our fiscal picture look a lot rosier than it actually is. It’s like counting your friend’s savings as part of your own when applying for a mortgage—it just doesn’t work that way.
Growth Projections: A Stretch, to Say the Least
The government’s economic growth forecasts are a bit like betting on a winning lottery ticket. Sure, they’re citing private-sector projections, but they conveniently ignore the economists warning about geopolitical risks and sluggish business investments. And unlike past budgets, this one doesn’t leave room for unexpected disruptions—no rainy-day fund for things like trade disputes or natural disasters. That’s a risky gamble in today’s volatile world.
Inflation and Housing: A Tale of Two Realities
Here’s where it really hits home for most Canadians. The FES proudly points to declining rents for new leases, but let’s be real—most of us aren’t seeing a housing affordability miracle. The structural problems in housing—red tape, zoning restrictions, and a lack of labor—remain unaddressed. And on inflation? They’re leaving out mortgage interest costs in their calculations, which is a big deal when rising interest rates are squeezing household budgets.
Debt: The Elephant in the Room
Yes, Canada’s net debt-to-GDP ratio looks good compared to other G7 countries, but don’t let that fool you. Gross debt is climbing fast, and servicing this debt will eat into funds for other priorities as interest rates rise. The FES also casually revised the deficit from a forecasted $40 billion to $61.9 billion without a robust explanation. That’s not a small miss; it’s a massive one that raises serious questions about fiscal discipline.
Labor Productivity: Missing the Mark
The FES celebrates job creation, which is great on the surface. But dig deeper, and you’ll find Canada’s labor productivity is sliding. Investments in innovation and AI aren’t targeting the sectors that need it most, like construction. And the pause on immigration to address housing pressures? That’s going to exacerbate labor shortages in critical areas like healthcare and infrastructure.
Taxes and Revenue: Wishful Thinking
The FES banks on robust GDP growth to bolster revenues, but what if that growth doesn’t materialize? The carbon rebates and rural top-ups, while helpful for some, are narrowly focused and don’t address broader environmental or economic disparities. This optimism could leave the government scrambling if revenues fall short.
Clean Energy Investments: Ambition Without Accountability
The FES talks a big game on clean energy investments but offers little clarity on how projects like carbon capture and storage will be held accountable. Without clear benchmarks, these initiatives could end up being expensive photo ops rather than transformative policies.
Charts That Paint a Happy Picture
Let’s talk about those charts. They’re designed to make us feel good, but here’s the reality check:
- Inflation Metrics: They omit mortgage interest costs, downplaying the real strain on households.
- GDP Growth: They highlight aggregate growth but ignore GDP per capita, which is declining due to rapid population growth.
- Wage Growth: The gains aren’t evenly distributed, and rising housing costs are eroding the benefits.
- Housing Starts: The numbers look good but fail to address bottlenecks in construction productivity.
- Employment Growth: Youth and newcomer unemployment remain stubbornly high, a glaring omission in the FES.
Blaming COVID and Indigenous Spending: A Convenient Scapegoat
The government’s narrative that COVID and Indigenous spending are behind the deficit overage is disingenuous. These costs were already accounted for in previous budgets. Pandemic-related expenditures have largely transitioned into ongoing costs, and Indigenous spending is a long-overdue moral and legal obligation, not an unexpected hit to the budget. The real culprits? Rising debt servicing costs, overly optimistic revenue projections, and unchecked program spending.
What Needs to Change
Canada needs a more transparent and balanced approach. Here’s what the government should focus on:
- Realistic Debt Metrics: Stop including pension funds in net debt calculations.
- Contingency Planning: Build a buffer for unforeseen challenges.
- Productivity Boost: Target investments where they’ll have the greatest impact.
- Honest Reporting: Provide a full picture, not just the highlights.
And more about all those charts—let’s break some down, as their thinking has some serious flaws.
1. Chart on Consumer Price Inflation
- Claim: Inflation is within the Bank of Canada’s target range and declining.
- Merit: This is factually correct; headline inflation has dropped, partly due to monetary tightening and temporary factors such as energy price stabilization.
- Reality Check:
- The exclusion of mortgage interest costs understates real inflationary pressure for households. Many Canadians face significantly higher living costs than reflected in the chart.
- The emphasis on disinflation in goods masks persistently high service-sector inflation, which has broader impacts on the economy.
2. Chart on IMF Real GDP Growth Projections for 2025
- Claim: Canada is projected to lead the G7 in GDP growth.
- Merit: Canada has benefited from relatively strong post-pandemic recovery policies and favorable immigration-driven population growth.
- Reality Check:
- GDP growth per capita, a better measure of economic well-being, is declining due to high population growth rates. This diminishes the significance of aggregate GDP growth.
- The chart ignores long-term productivity concerns that could cap sustainable growth levels.
3. Chart on Wage Growth Outpacing Inflation
- Claim: Wage growth has consistently outpaced inflation for 21 months.
- Merit: This is a positive trend for purchasing power and reflects tight labor markets in certain sectors.
- Reality Check:
- Wage gains are not evenly distributed, with lower-wage earners and precarious workers often seeing smaller real increases.
- Rising wages might be offset by elevated housing costs, eroding the financial benefits for many Canadians.
4. Chart on Real Consumer Spending Per Capita
- Claim: Consumer spending has remained resilient.
- Merit: Strong government transfers during the pandemic supported household consumption.
- Reality Check:
- Elevated savings rates reflect cautious consumer behavior, suggesting a lack of confidence in long-term economic stability.
- Debt servicing costs are likely to suppress consumer spending as mortgage renewals and higher rates take effect.
5. Chart on Housing Starts
- Claim: Housing starts are above pre-pandemic levels in all regions.
- Merit: This suggests some success in government efforts to stimulate construction.
- Reality Check:
- The focus on rental housing growth ignores structural barriers, such as zoning laws and municipal bottlenecks, that hinder sustained construction levels.
- Declining productivity in the construction sector, noted elsewhere in the FES, undermines the optimism of this chart.
6. Chart on Employment Growth
- Claim: Canada’s employment recovery outpaces other G7 countries.
- Merit: Employment levels have rebounded strongly, and job creation in high-wage industries is a positive indicator.
- Reality Check:
- Youth and newcomer unemployment remain high, signaling uneven recovery across demographics.
- Rising unemployment rates since early 2023 are glossed over, and no connection is made between these trends and restrictive monetary policies.
7. Chart on Housing Affordability
- Claim: Asking rents for new leases are declining in many markets.
- Merit: There are modest signs of relief in rental markets due to increased supply and slowing demand.
- Reality Check:
- The emphasis on declining rents is misleading, as the overall rental market remains unaffordable for most Canadians.
- The chart fails to address the broader affordability crisis caused by insufficient housing stock relative to population growth.
8. Chart on Stock Market Growth
- Claim: Canada’s stock market outperformed peers in recent months.
- Merit: This reflects investor confidence and strong capital inflows into sectors like clean energy and mining.
- Reality Check:
- Equity market performance is not a direct measure of economic health for average Canadians, especially given rising wealth inequality.
- The emphasis on short-term growth ignores systemic risks, such as geopolitical instability and dependence on volatile resource markets.
9. Chart on Population Projections
- Claim: Adjustments in immigration policy will reduce housing demand and improve affordability.
- Merit: Slower population growth may ease immediate pressure on housing markets.
- Reality Check:
- The two-year pause in immigration growth risks labor shortages, particularly in essential sectors like healthcare and construction.
- Affordability improvements depend heavily on achieving ambitious housing targets, which remain uncertain due to capacity constraints.
10. Chart on Fiscal Metrics
- Claim: Canada maintains the lowest debt-to-GDP ratio in the G7.
- Merit: Canada’s fiscal position appears strong relative to its peers.
- Reality Check:
- The net debt metric, which includes CPP and QPP assets, is misleading. Gross debt levels are rising rapidly, increasing long-term fiscal vulnerabilities.
- Excluding contingent liabilities and unfunded commitments from these calculations underestimates the true fiscal risks.
marksdeepthoughts.ca 
Leave a comment