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The good and the bad in the government’s fiscal update


You can be forgiven if you have not yet read through all 96 pages of the Economic and Fiscal Update 2021 released by the federal government yesterday. No worries, though. We have got you covered here at The Hub. We have gathered several of our contributors to summarize the document’s key details and offer some initial takes on what it reveals about our economy and Ottawa’s finances moving forward.

Aaron Wudrick

Fall economic statements generally come in two flavours: basic “snapshots” of revenue and expenditures, or mini-budgets that include significant new permanent spending announcements. This one probably falls into the former category as new spending is essentially temporary emergency spending, related to both the pandemic and the flooding in British Columbia. It appears that Canadians will have to wait until a spring budget for a clearer sense of any major changes to the overall spending track. Such as, whether the government will be paring back its significant stimulus plans in the face of inflationary pressures (as pledged in the Liberal platform), whether any measures to boost weak growth (which the government projects will drop below two percent annually after 2023) will be introduced, as well as an outline of the path back to a balanced budget—something that has been missing since the Trudeau government’s first budget in 2016.

Aaron Wudrick is the director of the domestic policy program at the Macdonald-Laurier Institute.

Trevor Tombe

Canada’s finances took a significant hit from the pandemic. Large-scale income support programs to individuals and businesses and lower revenues combined to increase the federal debt by roughly $600 billion between 2019 and 2021. But the new projections in the fiscal update for 2021/22 suggest a stronger fiscal future than many previously expected is ahead.

Here’s a breakdown. The deficit next year is now projected at 2.2 percent of GDP, declining to 0.4 percent by 2026. The total federal debt will reach a peak of 48 percent of GDP this year—lower than the 51.2 percent previously projected. And this is set to decline to 44 percent by 2026.

And looking out further, my own projections (based on adjusting my fiscal model published here) suggest that at federal borrowing rates of three percent and nominal GDP growth rates of four percent, the federal debt returns to pre-COVID levels within 15 years or so (depending, of course, on future spending choices). 

This is significant. For perspective, in the summer of 2020 I compiled some analysis that suggested that to return to pre-COVID debt levels by the mid-2030s, Canada would need a seven percent GST or equivalent spending reductions. Now we appear to be on that same debt trajectory without it. And carrying this elevated debt in the meantime also comes with a surprisingly limited fiscal burden. The update projects that debt service costs will average less than 1.2 percent over the next six months. This is identical to the debt burden projected in Budget 2019—prior to COVID—for years beyond 2021.

Much can change, of course, with mounting concerns around COVID variants. And one can certainly prefer a faster decline in federal debt than is on offer here. But it’s worth recognizing that the most significant federal borrowing outside of World War II appears entirely—if not easily—manageable.

Trevor Tombe is a professor of economics at the University of Calgary.

Sean Speer

Yesterday’s Economic and Fiscal Update is a mixed bag. There’s some good news embedded within its 96-pages. We’ve mostly recovered lost output from the pandemic and are now seeing positive progress on employment and short-term economic growth. The government reports, for instance, that the size of Canada’s economy will reach nearly $2.5 trillion this year, which is what was projected in the 2018 budget prior to the pandemic. These positive developments tell us that Canada has experienced something approximating a U-shaped recovery from the depths of the pandemic-induced recession.

One can dispute different aspects of the government’s fiscal response to the pandemic—including the design, generosity, and duration of various forms of emergency spending—but, in overall terms, these measures stabilized the economy and avoided significant economic harm for individuals and households. The government deserves credit for that. 

Now the bad news. The first problem is that, notwithstanding higher real GDP growth in 2021 and 2022, the average annual growth rate between 2023 and 2026 is projected to be barely 2 percent. This is consistent with recent OECD projections that anticipate Canada will experience the slowest real GDP per capita growth among advanced economies over the next decade. Secular trends of sluggish economic growth and stagnant living standards ought to be a major—indeed, the most pressing—concern for Canadian policymakers. 

Yet, as a number of economists and former public servants observed in a recent profile of the Department of Finance’s deputy minister Michael Sabia, the government still seems more concerned with a mishmash of equity issues. The Economic and Fiscal Update does nothing to signal a new, more growth-oriented agenda. Instead it presumes that the government’s emphasis on inclusion over growth is still the right priority. The risk of course is that we remain stuck in what has been described as a “two-percent trap” that contributes to a political economy cycle of pessimism, populism, and polarization. 

The second problem is that there’s reason to be skeptical of the government’s medium-term fiscal plan. The Economic and Fiscal Update projects total program spending to significantly fall over the next two years as emergency pandemic spending winds down, and then grow at an annual average rate of 2.3 percent between 2023-24 and 2026-27. This rate of spending growth is substantially lower than anything that the Trudeau government has ever been able to achieve since first taking office. Between 2015-16 and 2019-20, for instance, federal program spending grew, on average, by 6.4 percent per year. 

It seems highly implausible that the government will pursue a post-pandemic fiscal plan that amounts to a more than 50-percent cut in year-over-year spending growth relative to pre-pandemic levels. It’s far more likely that program spending in the coming years will grow at a rate closer to 6.4 percent than 2.3 percent—especially in a minority parliament in which the Liberals are dependent on support from the NDP to pass their budgets. 

The fiscal results could be significant. Consider, for instance, projections for 2023-24 and 2024-25 in which total program spending is expected to climb by a mere 1.6 percent from $420.7 billion to $427 billion. If it were to grow instead by 6.4 percent, it would increase to $447 billion and, all things being equal, the annual deficit could climb from $29.1 billion to nearly $50 billion. 

The key point here is that while the Economic and Fiscal Update contains some good news, fiscal risk is still tilted towards the downside and the cause of that risk isn’t exogenous. It’s the Trudeau government’s own high-spending tendencies.

Sean Speer is The Hub’s editor-at-large.

Chris Spoke: This election is an opportunity for Ontario to get serious about housing


It’s been a week since Ontario announced the membership of its Housing Affordability Task Force. The idea is that these experts will work in consultation with as many stakeholders as possible to develop a plan to address the province’s housing affordability crisis.

I have some ideas for changes that they should include in their final output. If accepted and successfully implemented, these would do a lot to unlock the massive potential of missing middle housing development in Ontario’s cities.

To place this all in context, consider the following: to accommodate future growth, we’ll need to build at least one million new homes in Ontario over the next ten years. That’s much more than the approximately 720,000 that were completed over the last ten years.

There are 850,000 detached and 250,000 semi-detached homes in Toronto alone. If it were legal for these to be converted to lowrise multi-unit housing, or what planners call missing middle housing, converting just 15 percent of them to fourplexes (or 10 percent of them to sixplexes) would deliver half of those one million new homes.

Here are a few ideas to allow for more missing middle housing throughout the province that I’ve organized into three categories: pre-election, platform, and post-election.


The next five to six months should be used by the province to demonstrate that it’s serious about addressing housing affordability with strong supply-side reforms while not actually touching land-use rules—yet. (Meaningful land use liberalization is as much a third rail in Western politics as any, but it is necessary. It should be saved for the first 100 days following the election.)

Specifically, the province should make three big changes that would set the stage for a boom in missing middle housing development once those land-use rules are updated.

First, it should exempt buildings of up to eight units from site plan control.

Currently, any development project featuring more than three or four units, depending on the municipality, needs to undertake a lengthy and expensive site plan control process before it can apply for and receive any building permits.

Without going into too much detail on the steps involved in the site plan control process, that threshold should be bumped up to eight units.

Second, it should amend the Ontario Building Code to allow for a single exit, with alternative fire measures implemented, on buildings up to four storeys tall.

Currently, all multi-unit development projects require two exits. This one requirement can often mean the difference between a feasible and infeasible project at the scale we’re talking about, as missing middle housing is often built on small urban infill sites.

The Ontario Building Code could allow for one exit with alternative fire measures implemented (for example, a sprinkler system) without affecting resident safety. The Ontario Association of Architects, among other professional groups, agrees that this is a good idea.

Third, it should amend the Condominium Act to allow for easier small-scale land stratification at the missing middle scale. 

This one’s pretty straightforward: it shouldn’t be cost-prohibitive to condominiumize a fourplex. The easy way to do this would be to just copy British Columbia’s framework.


The election platforms of all parties should be used to rhetorically emphasize their seriousness about addressing the housing affordability issue while not being too specific about the more controversial aspects of those supply-side reforms.

Remember, we call NIMBYs “NIMBYs” because they all insist that they’re very much pro-development, just not in or anywhere near their backyard.

All three parties should include language in their platforms around working with municipalities to allow for more missing middle housing in more neighbourhoods.

The key here is to stress the economic, environmental, and social benefits of gentle intensification in a way that would be hard for any opposition to form and attack in the abstract.


Now for the fun stuff. The first 100 days following the election are when the big, controversial changes need to be made.

Remember: housing is expensive because there’s not enough of it, and there’s not enough of it because of a strong and pervasive status quo bias to preserve the so-called character of our urban neighbourhoods.

If you want to overcome a status quo bias, you need to establish a new status quo as quickly as possible ahead of the next election.

The first 100 days following the election are when the province needs to force meaningful land-use liberalization.

These are three ideas for what that should look like, which I’m borrowing (with some amendment) from a bill that was just introduced in the New York State Senate last week:

  • No minimum lot sizes above 1,200 square feet;
  • No minimum parking requirements; and
  • No maximum building heights below 12 meters; and
  • Every residential lot must allow a minimum of four units, or six units within a population centre of 500,000 or more people, or eight units within 800 meters of a major transit station.

Taken together, these changes would lead to an unprecedented boom in missing middle housing development over the next few decades.

They would also open our urban neighbourhoods back up to the young, the new, and the middle class while curbing urban sprawl and kickstarting a new wave of upward mobility.

Given the severity of the housing affordability crisis and the extraordinary appetite for bold action, the province has a generational opportunity to chart a new path for our future.

We should all hope that they choose one that includes many more homes for many more people.