Liberals’ fiscal update focused on Trump overshadowed by Freeland resignation

OTTAWA — The Liberals’ fiscal update was intended to encourage business investment and beef up border security ahead of Donald Trump’s return to the White House next month.

But the sudden resignation of Finance Minister Chrystia Freeland hours before the document was tabled instead ignited even more political and economic uncertainty.

Freeland shocked the political world Monday morning when she announced her resignation from cabinet in a post on X. She said in her resignation letter the only “honest and viable path” was to step down after Prime Minister Justin Trudeau told her Friday he was moving her out of the finance portfolio and offering her another role in cabinet.

She oversaw the development of the fall fiscal update but did not table it or deliver the planned speech in the House of Commons. Her speech was scrubbed from documents provided to reporters ahead of the document’s release.

“The really big surprises weren’t what were in between the pages of the book today, it was what happened on the margins,” said Scotiabank economist Rebekah Young.

“This appears to be a placeholder as we get closer and closer to elections.”

The document shows a much larger deficit than expected for the fiscal year that ended last March because of billions of dollars the government expects to pay for Indigenous legal claims and pandemic-related benefits and loans it doesn’t expect to recover.

The deficit for 2023-24 came in at $61.9 billion, almost $22 billion more than forecast when the government delivered its budget last spring.

The budget shortfall is expected to shrink to $48.3 billion for the current fiscal year.

Among the highlights of new measures included in the plan is a decision to reinstate a temporary change to the capital cost allowance, which allows businesses to make larger tax deductions for capital costs up front.

The measure aims to bolster business investment in Canada as Trump promises tax cuts in the U.S. It is expected to cost the federal government $17.4 billion over six years.

The fiscal update also earmarks $1.3 billion for expanded surveillance of the border as Trump threatens 25 per cent tariffs on all goods coming from Canada and Mexico unless both countries stop the flow of migrants and illegal drugs into the U.S.

But nothing in the fall economic statement could steal headlines from Freeland’s decision and the ensuing political chaos.

Freeland said in her letter that she has been at odds with the prime minister over the last several weeks on the best path forward for Canada as the threat of U.S. tariffs loom.

“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. That means eschewing costly political gimmicks, which we can ill afford and which make Canadians doubt that we recognize the gravity of the moment.”

Notably, the fiscal update did not include the GST holiday that began on certain items Saturday but not the $250 rebates the Liberals promised to send to working Canadians in the spring.

The rebates were to be sent to people who earned up to $150,000 in employment income in 2023, but the Liberals are not currently proceeding with it because no other political party would support the policy as written.

Calls for Trudeau’s resignation erupted after Freeland’s letter went public, including from Liberal MPs and NDP Leader Jagmeet Singh, raising the odds of an early election.

Public Safety Minister Dominic LeBlanc was sworn in as the new finance minister late Monday afternoon at Rideau Hall as Trudeau looked on.

Mostafa Askari, a chief economist at the Institute for Fiscal Studies and Democracy, said while Trump’s presidency brings uncertainty to Canada, the political uncertainty triggered by Freeland’s resignation magnifies it.

“Our domestic situation now is very uncertain and could have (a) huge impact on the Canadian economy and our fiscal and economic situation,” Askari said.

This report by The Canadian Press was first published Dec. 16, 2024.

Nojoud Al Mallees, The Canadian Press