Federal deficit balloons to $61.9B as government tables economic update on chaotic day in Ottawa

The federal government tabled a fall economic statement Monday that calls for more than $20 billion in new spending and explains how last fiscal year's deficit ballooned to $61.9 billion — but it was Chrystia Freeland's abrupt resignation as finance minister and her questioning of her own government's economic policy that sent Canadian politics into a frenzy.

The day was thrown into disarray when Freeland, who was meant to deliver the statement, resigned from Prime Minister Justin Trudeau's cabinet just as reporters and stakeholders were headed to a media lockup to view the document.

Those in the room were meant to receive the document under embargo at 10 a.m. ET, but dozens of copies sat shrouded under black tablecloths until 1:45 p.m. ET as officials scrambled to deal with an unprecedented situation. 

Government House leader Karina Gould ended up tabling the fall economic statement in the House of Commons on Monday afternoon just after 4p.m. ET. By dinner time in Ottawa, Public Safety Minister Dominic LeBlanc had been sworn in as the new finance minister.

Along with showing that the federal government blew its own deficit target by more than $20 billion, the document — overseen by Freeland before her resignation —  includes pledges to address U.S. president-elect Donald Trump's return to the White House.

They include $1.3 billion for a border security package over six years — part of Ottawa's plan to fend off Trump's threat of steep tariffs — although the 270-page document doesn't explain exactly how that money will be spent. The government is also earmarking billions of dollars to boost Canadian businesses amid global uncertainty.

Freeland's resignation letter suggests she did not agree with her boss on how to tackle those challenges.

In a letter addressed to Trudeau and posted to social media, Freeland, who has been finance minister since 2020, said the only "honest and viable path" for her was to leave cabinet after the prime minister approached her Friday about moving her to another cabinet role.

She also took a parting shot at her boss's handling of the country's economy, denouncing what she called the government's "costly political gimmicks" and imploring him to work collaboratively with the country's premiers to confront Trump tariff threat.

As expected, the update includes the government's promised GST holiday, which came into effect Saturday and is expected to cost $1.6 billion.

The document does not include the government's promise to send $250 cheques to working Canadians. The rebates were to be sent to people who earned up to $150,000 in 2023, but the promise faces opposition from other parties in the House.

Sahir Khan, executive vice president of the University of Ottawa Institute of Fiscal Studies and Democracy, said that apart from the expected tax holiday, Monday's document doesn't have a lot of gimmicks.

"It's actually probably the first time we've seen them pivot from a consumption-oriented, wealth redistribution budget to one that's investment-focused," he said.

"It's still borrowing for this. We're still increasing debt to do this, but there's been a pivot."

Ottawa blows past deficit promise

In her spring Budget 2024 speech, Freeland laid out guideposts she said would demonstrate the government's continuing commitment to fiscal responsibility. The first was a promise to keep the 2023-24 deficit at or below $40 billion.

The federal government has blown past that benchmark; Monday's update posts a deficit of nearly $62 billion for last fiscal year.

The federal government says the 2023-24 spike is due to one-time costs, including $16.4 billion related to Indigenous claims playing out in court and $4.7 billion related to the COVID-19 pandemic. The deficit is projected to dip down to $48.3 billion for this current fiscal year.

"Definitely a fiscal surprise on the negative side. Nothing Canada can't deal with, but definitely a surprise," said Kahn. 

Another government promise was to maintain a declining debt-to-GDP ratio. According to the fall economic statement, the government has kept within that guardrail — barely.

The federal debt-to-GDP ratio in 2023-24 was 42.1 per cent and the government now predicts it will decline to 41.9 per cent in fiscal 2024-25.

"But it's still probably higher than some people would like," said Kahn.

Vague border plan 

Today's fiscal update comes as Canada navigates choppy waters in its most important trading relationship. Trump has threatened to impose a 25 per cent tariff on imports from Canada and Mexico, citing concerns about border security, migrants and illegal drugs, especially fentanyl. Tariffs at that level could cripple Canada's economy.

The fall economic statement signals that the government is willing to spend more on the Canada Border Services Agency, the RCMP, Public Safety Canada and the Communications Security Establishment, but it's light on details about how that money will be spent.

The government has suggested it will be buying helicopters and drones to strengthen monitoring of the shared border.

Freeland's letter said she has been at odds with the prime minister about the the best path forward for Canada in the face of Trump's tariff threat. 

"We need to take that threat extremely seriously," Freeland wrote.

"That means keeping our fiscal powder dry today, so we have the reserves we may need for a coming tariff war."

Trump ally David Asher, senior fellow at the Republican-friendly Hudson Institute think-tank, said the changes announced in the fall economic statement are a step in the right direction. But he added that they're modest, and mostly things peer countries are already doing.

Reacting Monday, Asher — who led an anti-fentanyl task force under Trump and advises members of his incoming team — said he'd prefer to see closer cooperation between the U.S. and Canada in cracking down on Mexican and Chinese cartels that operate across the shared border.

He said the U.S. could arrest more fentanyl traffickers if there was a political push to run joint surveillance operations —something the head of the RCMP has suggested he's open to — and share more information on financial crimes.

"We'd be able to charge these people in the United States, with your help. And lock them up if you can't," Asher said.

"You don't have a RICO [racketeering] statute. We do." 

He said a few vague promises in a budget statement might not get Trump's attention. Something like a joint Canada-U.S. fentanyl task force might achieve that, he said, adding, "You really have to pony up."

The document does multiple legal changes related to money-laundering that are meant to target organized crime in Iran, China and at home.

The Canadian government has been criticized by some Trump allies for talking repeatedly about the small amount of contraband seized at the border and not about the broader presence of organized crime.

Billions pledged to encourage businesses to invest

Most of the new investments mentioned in the statement are incentives meant to encourage investment in Canada and address what's been described as Canada's productivity problem.

The government says it will spend $17.4 billion to extend the accelerated investment incentive — temporary tax changes that allow companies to write off the value of investments immediately.  It also announced $1.1 billion in new spending to boost the Scientific Research and Experimental Development tax incentive program, which was set up to encourage businesses to conduct research and development in Canada.

Khan called the new spending largely business-oriented and growth-oriented.

"Something we really haven't seen as a matter of focus for this Liberal government," he said.

Conservative Leader Pierre Poilievre called for the government to hold a confidence vote on the economic update immediately. The House of Commons is scheduled to break Tuesday for the holidays.

"The prime minister has lost control, yet he clings to power," he said during question period.

Speaking later to CBC's Power & Politics, MP Peter Julian, the NDP House leader, said the party will vote non-confidence in the government if Trudeau stays on as leader into the new year. That would trigger an early election.

"There is no doubt about that," he said.