Reuters
Sun, November 19, 2023
(Reuters) - Canada's Finance Minister Chrystia Freeland will announce a narrowly focused fall fiscal update on Tuesday to include a measure designed to make it less lucrative for people to use their properties as short-term rentals, Canadian newspaper The Toronto Star reported on Sunday.
Property owners in areas that already restrict short-term rentals will no long be able to claim their rental expenses against the income they make, a senior federal official told the newspaper.
The finance ministry did not immediately respond to a Reuters' request for comment.
Earlier this month, The Bank of Canada said the era of super-low interest rates was likely over and warned businesses and households to plan for higher borrowing costs than they have been used to in recent years.
The government has also announced plans to convert six federal properties into 2,800 new homes by March and is accelerating a process to identify more public buildings for home conversion as the country grapples with a housing shortage.
Housing supply has failed to keep up with Canada's immigration-fueled population growth, and affordability worsened during the coronavirus pandemic when housing prices soared due to high demand amid low borrowing costs.
The Canada Mortgage and Housing Corporation as well as the Bank of Canada have said the country's housing crunch needs to be solved by increasing supply.
(Reporting by Urvi Dugar in Bengaluru; Editing by Chris Reese)
Canada to launch subsidies for carbon capture, clean tech - source
FUNDING BIG OIL INC. IN ALBERTA
Steve Scherer
Updated Mon, November 20, 2023
FILE PHOTO: Canada's Deputy Prime Minister and Minister of Finance Chrystia Freeland attends the Canada-CARICOM Summit in Ottawa
By Steve Scherer
OTTAWA (Reuters) -Canada's government will present legislation this month to start paying subsidies for carbon capture and net-zero energy projects, a source with direct knowledge of the matter told Reuters, part of a plan to worth around $20 billion over five years.
A long delay in state support for carbon capture utilization and storage (CCUS) projects and for equipment used to produce low-carbon energy prompted industry lobbies to warn in September that some C$50 billion ($36 billion) worth of investments were at risk if the government did not act soon.
Finance Minister Chrystia Freeland will announce the investment tax credit (ITC) funding when she presents the so-called Fall Economic Statement (FES) to parliament on Tuesday afternoon, the source added.
It will be included in the FES legislation to be sent to parliament later this month, the source said. Previous budget documents estimated all five of the ITC programs together would funnel an estimated C$27 billion ($19.7 billion) during their first five years in operation.
The government will concurrently introduce to parliament the labor provisions that will be tied to most of the ITCs. They require investors pay workers the prevailing union wage and provide apprenticeship opportunities in order to collect the maximum subsidy.
Canada is lagging the U.S. on the incentives seen as necessary to spur investment in new, low-carbon technologies. Washington has been offering massive incentives to clean tech companies under the U.S. Inflation Reduction Act (IRA) for well over a year.
President Joe Biden has lauded the $430 billion IRA passed in August, 2022, as an economic powerhouse. Bank of America estimates it has already spurred $132 billion of investment across more than 270 new clean energy projects.
CCUS are seen as vital to cutting emissions from Alberta's oil sands without slashing production. Canada is the world's fourth-largest oil producer.
The transition to a low-carbon economy is a cornerstone of Prime Minister Justin Trudeau's economic policy and ITCs are key to help the government meet its goal of net-zero emissions by 2050.
There is "a global race for capital and investments in these sorts of projects," the source said. "The government is trying to provide certainty to investors."
The finance ministry does not comment on fiscal documents before their publication, a spokesperson said.
The CCUS were first announced in the spring of 2021, and the clean tech ITCs were announced a year later - both before the IRA was launched - but Canada is only now launching the legislation needed to get the money flowing.
Freeland will also provide a timeline for the other promised ITCs, with public consultations for two of the three remaining programs starting this year and legislation for all of them put forward by the end of next year, said the source who was not authorized to speak on the record.
Funding for ITCs for machinery and other tools needed to build green technologies, and for producing hydrogen, is likely to be presented in the spring of 2024, with clean electricity ITCs coming in the fall, the source said.
The FES will also offer C$15 billion in 10-year loans for new rental housing construction, a C$1-billion fund dedicated to getting more affordable housing built, and new mortgage rules for lenders dealing with homeowners at risk, the Canadian Broadcasting Corp reported on Monday citing a source.
The Toronto Star reported on Sunday that the FES would include a measure to crack down on profit making from short-term rentals.
The fiscal statement will put forward additional reforms to the Competition Act, the source told Reuters, in a bid to address affordability issues. The changes will be more broad than those announced earlier this year, and will address things like predatory pricing, the source said.
($1 = 1.3718 Canadian dollars)
(Reporting by Steve SchererEditing by Denny Thomas, Lincoln Feast and Christina Fincher)
Steve Scherer
Updated Mon, November 20, 2023
FILE PHOTO: Canada's Deputy Prime Minister and Minister of Finance Chrystia Freeland attends the Canada-CARICOM Summit in Ottawa
By Steve Scherer
OTTAWA (Reuters) -Canada's government will present legislation this month to start paying subsidies for carbon capture and net-zero energy projects, a source with direct knowledge of the matter told Reuters, part of a plan to worth around $20 billion over five years.
A long delay in state support for carbon capture utilization and storage (CCUS) projects and for equipment used to produce low-carbon energy prompted industry lobbies to warn in September that some C$50 billion ($36 billion) worth of investments were at risk if the government did not act soon.
Finance Minister Chrystia Freeland will announce the investment tax credit (ITC) funding when she presents the so-called Fall Economic Statement (FES) to parliament on Tuesday afternoon, the source added.
It will be included in the FES legislation to be sent to parliament later this month, the source said. Previous budget documents estimated all five of the ITC programs together would funnel an estimated C$27 billion ($19.7 billion) during their first five years in operation.
The government will concurrently introduce to parliament the labor provisions that will be tied to most of the ITCs. They require investors pay workers the prevailing union wage and provide apprenticeship opportunities in order to collect the maximum subsidy.
Canada is lagging the U.S. on the incentives seen as necessary to spur investment in new, low-carbon technologies. Washington has been offering massive incentives to clean tech companies under the U.S. Inflation Reduction Act (IRA) for well over a year.
President Joe Biden has lauded the $430 billion IRA passed in August, 2022, as an economic powerhouse. Bank of America estimates it has already spurred $132 billion of investment across more than 270 new clean energy projects.
CCUS are seen as vital to cutting emissions from Alberta's oil sands without slashing production. Canada is the world's fourth-largest oil producer.
The transition to a low-carbon economy is a cornerstone of Prime Minister Justin Trudeau's economic policy and ITCs are key to help the government meet its goal of net-zero emissions by 2050.
There is "a global race for capital and investments in these sorts of projects," the source said. "The government is trying to provide certainty to investors."
The finance ministry does not comment on fiscal documents before their publication, a spokesperson said.
The CCUS were first announced in the spring of 2021, and the clean tech ITCs were announced a year later - both before the IRA was launched - but Canada is only now launching the legislation needed to get the money flowing.
Freeland will also provide a timeline for the other promised ITCs, with public consultations for two of the three remaining programs starting this year and legislation for all of them put forward by the end of next year, said the source who was not authorized to speak on the record.
Funding for ITCs for machinery and other tools needed to build green technologies, and for producing hydrogen, is likely to be presented in the spring of 2024, with clean electricity ITCs coming in the fall, the source said.
The FES will also offer C$15 billion in 10-year loans for new rental housing construction, a C$1-billion fund dedicated to getting more affordable housing built, and new mortgage rules for lenders dealing with homeowners at risk, the Canadian Broadcasting Corp reported on Monday citing a source.
The Toronto Star reported on Sunday that the FES would include a measure to crack down on profit making from short-term rentals.
The fiscal statement will put forward additional reforms to the Competition Act, the source told Reuters, in a bid to address affordability issues. The changes will be more broad than those announced earlier this year, and will address things like predatory pricing, the source said.
($1 = 1.3718 Canadian dollars)
(Reporting by Steve SchererEditing by Denny Thomas, Lincoln Feast and Christina Fincher)
Trudeau’s Spending Plans Are Squeezed by Soaring Debt Payments
Erik Hertzberg
Mon, November 20, 2023
(Bloomberg) -- With his government deeply unpopular and an election due in the next two years, Canadian Prime Minister Justin Trudeau may be tempted to spend money. The bond market is getting in the way.
Trudeau’s administration is being squeezed by rising debt payments and slowing revenue growth — a challenge for a leader who, in eight years of governing, has never had to contend with an environment in which borrowing was expensive.
Interest costs have risen substantially since Finance Minister Chrystia Freeland drafted her March budget. The economy is weakening and the path to a so-called soft landing has narrowed. Canada’s central bank is warning that its policy rate, already at a 22-year high, may stay elevated for a while, given the current level of inflation.
This combination is a new problem for Trudeau, whose Liberals swept to power in 2015 promising to spend on social programs and infrastructure after years of austerity under Stephen Harper’s Conservatives. Interest charges on federal debt were C$28.2 billion ($20.5 billion) in the first eight months of this year, up 35% from the same period in 2022, and the pressure is rising to cut back on other spending.
“The federal government needs to reduce its level of program spending, that’s clear,” Randall Bartlett, senior director of Canadian economics at Desjardins Securities, said in an interview. Federal program expenses are expected to equal about 16% of gross domestic product this year — well above the long-term average. “We are at the mercy of international bond markets, and things can turn very quickly.”
Canada is one of only two countries in the Group of Seven with triple-A ratings from both S&P Global Ratings and Moody’s Investors Service. Freeland and Trudeau often laud that fact. “We are a government that has always exercised fiscal restraint,” the prime minister said Friday. “We have the best debt-to-GDP ratio in the G7.” Bartlett said in a Nov. 17 report that it’s unlikely Canada will fall from the highest credit rating.
But the government’s updated fiscal and economic projections, which Freeland will release Tuesday afternoon in Ottawa, will have to factor in the cost of new industrial subsidies, wage settlements for public-sector workers and new measures to spur housing construction. Combined with a slowing economy, that means there’s upside risk to the government’s forecast of a C$40.1 billion deficit this fiscal year.
The political timing is tough. The Liberals are slumping in opinion polls against their Conservative opponents, who have hammered the government on fiscal matters by accusing of them of stoking inflation with deficits.
Meanwhile, Trudeau’s minority government is being propped up in Parliament by a deal with the left-leaning New Democratic Party, which wants to spend. The parties’ supply and confidence agreement, by which the NDP agreed to help the Liberals pass legislation, includes a provision that the government should pass a national drug-coverage plan this year.
But the economic circumstances are throwing Trudeau’s progressive priorities into doubt. Canada’s government debt and deficit may be far below that of the US, but its borrowing costs are still driven by the US and global markets. Freeland’s spring budget projected a 10-year bond yield of 3% this year. Over the past two months, it’s averaged almost 4%.
Even as yields have eased in recent weeks — the 10-year benchmark closed Friday at a yield of about 3.68% — the base case isn’t for a return to rock-bottom financing costs.
“There is such thing as a debt ceiling, but you don’t know it until you hit it.” Rebekah Young, an economist at Bank of Nova Scotia, said by phone. “It could get to be more of a punishing environment if they overstep that line more than markets are comfortable with.”
Most economists agree Freeland and Trudeau didn’t reduce spending quickly enough as the economy burst back to life in 2021 and 2022. A majority of analysts surveyed by Bloomberg say the federal government’s spending and immigration programs are complicating the central bank’s fight to bring price pressures to heel. Bank of Canada Governor Tiff Macklem urged federal and provincial governments last month to start “rowing in the same direction” in the inflation fight.
Government revenue growth — which had been better than expected this year — is set to slow with the economy. Economists say Canada’s GDP will expand just 0.7% next year in real terms, and will decline on a per-capita basis.
Of course, there’s a huge amount of uncertainty in that forecast. If higher rates lead to a full-blown recession, the government will need ample fiscal room to support the country’s heavily indebted households.
In the last year, transfers from government represented 19% of Canadian household income, the highest level since 1994 outside the Covid-19 crisis.
The largest federal outlays happened during the pandemic: Total spending rose to C$623.8 billion in fiscal year 2020-21, as income replacement programs were rolled out for businesses and households as the economy was shuttered multiple times. Those expenditures pushed Canada’s debt to GDP ratio above 45% for the first time since 2000.
Asked about Freeland’s budget update Friday, Trudeau signaled no change in tack.
The document, the prime minister told reporters, will be “a demonstration that we know how to continue to be fiscally responsible while we make investments that are going to grow the economy and support Canadians.”
Most Read from Bloomberg Businessweek
Erik Hertzberg
Mon, November 20, 2023
(Bloomberg) -- With his government deeply unpopular and an election due in the next two years, Canadian Prime Minister Justin Trudeau may be tempted to spend money. The bond market is getting in the way.
Trudeau’s administration is being squeezed by rising debt payments and slowing revenue growth — a challenge for a leader who, in eight years of governing, has never had to contend with an environment in which borrowing was expensive.
Interest costs have risen substantially since Finance Minister Chrystia Freeland drafted her March budget. The economy is weakening and the path to a so-called soft landing has narrowed. Canada’s central bank is warning that its policy rate, already at a 22-year high, may stay elevated for a while, given the current level of inflation.
This combination is a new problem for Trudeau, whose Liberals swept to power in 2015 promising to spend on social programs and infrastructure after years of austerity under Stephen Harper’s Conservatives. Interest charges on federal debt were C$28.2 billion ($20.5 billion) in the first eight months of this year, up 35% from the same period in 2022, and the pressure is rising to cut back on other spending.
“The federal government needs to reduce its level of program spending, that’s clear,” Randall Bartlett, senior director of Canadian economics at Desjardins Securities, said in an interview. Federal program expenses are expected to equal about 16% of gross domestic product this year — well above the long-term average. “We are at the mercy of international bond markets, and things can turn very quickly.”
Canada is one of only two countries in the Group of Seven with triple-A ratings from both S&P Global Ratings and Moody’s Investors Service. Freeland and Trudeau often laud that fact. “We are a government that has always exercised fiscal restraint,” the prime minister said Friday. “We have the best debt-to-GDP ratio in the G7.” Bartlett said in a Nov. 17 report that it’s unlikely Canada will fall from the highest credit rating.
But the government’s updated fiscal and economic projections, which Freeland will release Tuesday afternoon in Ottawa, will have to factor in the cost of new industrial subsidies, wage settlements for public-sector workers and new measures to spur housing construction. Combined with a slowing economy, that means there’s upside risk to the government’s forecast of a C$40.1 billion deficit this fiscal year.
The political timing is tough. The Liberals are slumping in opinion polls against their Conservative opponents, who have hammered the government on fiscal matters by accusing of them of stoking inflation with deficits.
Meanwhile, Trudeau’s minority government is being propped up in Parliament by a deal with the left-leaning New Democratic Party, which wants to spend. The parties’ supply and confidence agreement, by which the NDP agreed to help the Liberals pass legislation, includes a provision that the government should pass a national drug-coverage plan this year.
But the economic circumstances are throwing Trudeau’s progressive priorities into doubt. Canada’s government debt and deficit may be far below that of the US, but its borrowing costs are still driven by the US and global markets. Freeland’s spring budget projected a 10-year bond yield of 3% this year. Over the past two months, it’s averaged almost 4%.
Even as yields have eased in recent weeks — the 10-year benchmark closed Friday at a yield of about 3.68% — the base case isn’t for a return to rock-bottom financing costs.
“There is such thing as a debt ceiling, but you don’t know it until you hit it.” Rebekah Young, an economist at Bank of Nova Scotia, said by phone. “It could get to be more of a punishing environment if they overstep that line more than markets are comfortable with.”
Most economists agree Freeland and Trudeau didn’t reduce spending quickly enough as the economy burst back to life in 2021 and 2022. A majority of analysts surveyed by Bloomberg say the federal government’s spending and immigration programs are complicating the central bank’s fight to bring price pressures to heel. Bank of Canada Governor Tiff Macklem urged federal and provincial governments last month to start “rowing in the same direction” in the inflation fight.
Government revenue growth — which had been better than expected this year — is set to slow with the economy. Economists say Canada’s GDP will expand just 0.7% next year in real terms, and will decline on a per-capita basis.
Of course, there’s a huge amount of uncertainty in that forecast. If higher rates lead to a full-blown recession, the government will need ample fiscal room to support the country’s heavily indebted households.
In the last year, transfers from government represented 19% of Canadian household income, the highest level since 1994 outside the Covid-19 crisis.
The largest federal outlays happened during the pandemic: Total spending rose to C$623.8 billion in fiscal year 2020-21, as income replacement programs were rolled out for businesses and households as the economy was shuttered multiple times. Those expenditures pushed Canada’s debt to GDP ratio above 45% for the first time since 2000.
Asked about Freeland’s budget update Friday, Trudeau signaled no change in tack.
The document, the prime minister told reporters, will be “a demonstration that we know how to continue to be fiscally responsible while we make investments that are going to grow the economy and support Canadians.”
Most Read from Bloomberg Businessweek
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