Freeland's economic update to include new housing loans, short-term rental tax changes

The Canadian government's fall economic update coming Tuesday will include new money to increase housing supply, as well as tax reforms targeting short-term rentals, CTV News has confirmed.

The fall economic statement will include opening up $15 billion in 10-year low-interest loans to build 30,000 more rental housing units across Canada, according to senior government sources speaking to CTV News on a not-for-attribution basis ahead of Finance Minister Chrystia Freeland's fiscal presentation.

The money will go from the Canada Mortgage Housing Corporation (CMHC) to builders to push ahead projects currently on the shelf, to increase the country's housing supply, an aim the source framed as "disinflationary." The timeline for rollout on this forthcoming pledge remains to be revealed.

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Freeland will also be moving forward with a policy measure she first signalled was on the horizon last month: cracking down on short-term rentals such as AirBnb and Vrbo properties, in order to expand the long-term rental supply nationwide. 

According to senior government sources, the federal government will be changing the equation for property owners by no longer allowing them to claim income tax deductions on rental expenses for their short-stay properties in regions where short-term rental restrictions are in place.

Set to come in to effect Jan. 1, 2024, one of the sources said, as an example, under this regulation change a short-term rental that earns $120,000 in income with $120,000 in expenses would now have to pay $33,000 in federal taxes.

While Housing Minister Sean Fraser wouldn't speak to the measures being announced Tuesday, he said the federal government estimates there are likely "tens of thousands" of short-term rentals that could be made available as family homes.

Fraser also spoke to the advantageous policy levers the federal government has, including passing on its low borrowing rate to help projects along and in return bring down the cost of housing. "Every measure that we advance helps," he said.

In addition to these sneak preview pledges sources have shared, the update is expected to include a $1-billion affordability-focused housing fund and new mortgage guidance.

It has also been reported that Tuesday's presentation will include an update on pre-committed clean technology measures. Beyond that, it remains to be seen how substantial a fiscal snapshot this will be.

'A VERY CHALLENGING PICTURE'

Given the Liberals' recent focus on finding federal savings and economists warning of a slowing economy, the annual economic presentation is not expected to be a big-spending package or a "mini-budget" as it can often be framed, rather a checkpoint on Canada's finances and the current government's plans to create jobs and grow the economy.

One source described the document that will be tabled by Freeland after markets close on Tuesday as a "very focused" and "slim" document, meant to be a continuation of the Liberals' current focuses and reflective of the need to make choices about where to spend.

Freeland's update — including government spending since the spring federal budget, the overall Canadian economic outlook, and key financial projections — comes at a dire time politically for the Liberals.

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It's likely the federal cabinet will be looking to Tuesday's "FES" to help turn the tide and convince Canadians that the minority Liberals are accurately attuned to their economic concerns and the best-placed political party to respond to their cost-of-living constraints.

A recent survey from Nanos Research found that most Canadians aren't feeling positive about their finances, with 48.8 per cent of respondents saying they feel personally worse off financially and 51.8 per cent consider the economy to be weaker now than one year ago. 

Though, with Freeland speaking increasingly about this being a time to show fiscal restraint — something Prime Minister Justin Trudeau recently suggested his government has always done — it remains to be seen how much new money the Liberals can responsibly roll out through this update without further exacerbating inflation and hindering the Bank of Canada's interest rate efforts.

"We continue to deliver investments in Canadians, while remaining responsible fiscally and have all the way through. And that's more of what I'm excited to share next week with the fall economic update, a demonstration that we know how to continue to be fiscally responsible while we make the investments that are going to grow the economy and support Canadians," Trudeau told reporters last week.

As of the 2023 federal budget, the government had plans for continued deficit spending targeted at Canadians' pocketbooks, public health care and the clean economy. In the months since, the Liberals have put a fresh focus on the housing crisis and the cost of groceries.

It's possible Freeland will look to stitch in a series of policy-based changes rather than new money announcements into Tuesday's update as the way to signal to Canadians their plans to support them through the current economically uncertain times, while likely continuing to point to Canada having the lowest debt-to-GDP ratio in the G7 as a key metric.

"Every new announcement the government makes in terms of investing new money in the economy is by nature, inflationary," said Robert Asselin, senior vice-president of policy at the Business Council of Canada. Between 2015 and 2017, Asselin was the policy and budget director for then-federal finance minister Bill Morneau.

Noting that the economy is receding, with the prospect of a recession being considered, he said the priority should be on bringing inflation down in order to stabilize the current levels of uncertainty.

"We have debt servicing costs that are much higher than they were just a few months ago, which means that every dollar the government spends servicing the debt, does less to fund anything else," Asselin said. "So going into the update, this is a very challenging picture for the government."

OPPOSITION EXPECTATIONS

Ahead of the update, opposition parties have put in the window the policy measures they'd like to see included.

NDP Leader Jagmeet Singh wants the statement to focus on housing and food costs.

"We want to see investments to make housing more affordable, not just any old housing. We need homes that are affordable," Singh said last week. "We also need action to bring down the price of groceries."

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For months, Conservative Leader Pierre Poilievre has been calling on Freeland to put an end to Liberal "inflationary spending" and present a plan to get the federal budget back to balance, something the last budget projected wouldn't be happening before 2028 at the earliest.

Speaking to what specifically he wants to see out of Tuesday's fiscal update, Poilievre has said he wants the Liberals to squash plans to increase the carbon tax, bring down interest rates and inflation by balancing the budget and adopt his proposal to "build homes, not bureaucracy."

He restated these calls during a press conference on Parliament Hill Monday morning.

"Tomorrow we'll see more of the same inflationary spending, housing photo-ops and promises and glitzy deficits," Poilievre predicted.

As of the mega March economic update, the federal deficit was projected to be $40.1 billion in 2023-24, nearly $10 billion more than forecast in the previous fall's economic snapshot. In a financial statement published last month, the 2022-23 deficit was $35.3 billion, $7.7 billion lower than forecast.

With files from CTV News' Chief Political Correspondent Vassy Kapelos