Fall Economic Statement 2023: Issues for Parliamentarians
To assist parliamentarians in their budgetary deliberations, this report highlights key issues arising from the 2023 Fall Economic Statement.
Summary
Economic outlook
On balance, the outlook for growth in real gross domestic product (GDP) over 2023 to 2028 presented in the Fall Economic Statement (FES) is slightly weaker compared to PBO’s October outlook, with annual growth averaging, respectively, 1.7 per cent and 1.8 per cent. This slight difference largely reflects more subdued growth over 2024 and 2025 projected by private sector economists.
Nominal GDP in the FES is $32 billion (1.0 per cent) lower per year, on average, over 2023 to 2028 compared to PBO’s October outlook. This difference reflects both lower short‑term real GDP growth and inflation projected by private sector economists in the Fall Economic Statement.
Fiscal outlook
Relative to the 2023 Budget, the Fall Economic Statement included $20.7 billion in net new measures over 2023-24 to 2028-29. This represents an increase in (net) new spending of $7.0 billion compared to PBO’s October outlook.
When put on a comparable basis (that is, our October projection adjusted for new measures), PBO’s projected budgetary deficits are $6.1 billion lower annually, on average, over 2023-24 to 2028-29.
New measures
Revisions to the private sector economic outlook and fiscal developments in the Fall Economic Statement lower the outlook for the budgetary balance by $18.7 billion (or $3.7 billion per year, on average) over 2023-24 to 2027‑28 relative to Budget 2023.
In addition, the Government announced $23.6 billion in new spending that was partially offset by $2.9 billion in “refocusing and reallocation” spending measures. On a net basis, new measures further reduce the budgetary balance by $20.7 billion (or $3.4 billion per year, on average) over 2023-24 to 2028-29.
Since Budget 2021, the Government has projected a total of $212.8 billion in new fiscal room. Essentially all of this fiscal room has now been exhausted through increased spending (on a net basis), with only $0.5 billion used to reduce the deficit (on a cumulative basis). Of the $212.8 billion in new fiscal room, $188.8 billion (89 per cent) has been used to finance new non-COVID‑19 measures over 2021-22 to 2028-29.
Spending reviews
The Fall Economic Statement further expands on the Budget 2023 commitment to refocus government spending, with the goal to identify an additional $2.4 billion in savings over 2025-26 to 2028-29. In addition, the FES outlines savings of $0.5 billion over six years, starting with $0.1 billion in 2023-24.
There is currently little information available on the status of $15.4 billion in Budget 2023 spending reviews and the additional $2.4 billion in savings announced in the Fall Economic Statement. Further, there is currently no publicly available information related to the $3.6 billion in spending to be reallocated in 2023-24.
Parliamentarians may wish to request additional details about the Government’s refocusing and reallocation plans, including the status or results of the programs impacted (if any).
Fiscal anchor
The Fall Economic Statement reaffirmed the Government’s commitment to its fiscal anchor of reducing the federal debt as a share of the economy over the medium term. Based on the outlook presented in the FES, the federal debt-to-GDP ratio is projected to increase, remaining above its 2022-23 level of 41.7 per cent for three years, before gradually declining over the medium term.
On a status quo basis—that is, without additional measures and given possible economic outcomes surrounding the private sector outlook—we estimate that there is a 70 per cent chance that the federal debt-to-GDP ratio in 2028-29 would be below its 2022-23 level of 41.7 per cent.
Fiscal transparency
This year the Public Accounts were tabled on October 24—seven months after the close of the fiscal year. Canada falls short of the standard for advanced practice in the International Monetary Fund’s (IMF) financial reporting guidelines, which recommends that governments publish their annual financial statements within six months of the end of the fiscal year (September 30th in Canada’s case).
Although this year saw improvement in the tabling dates of Public Accounts and Departmental Results Reports, parliamentarians may wish to request that the Government publish the Public Accounts and the Departmental Results Reports within six months of the close of the fiscal year.
Economic outlook
Table 1 provides a high-level comparison of the average private sector forecast in the Government’s Fall Economic Statement (FES) and PBO’s Economic and Fiscal Outlook (EFO) published on October 13.[^1]
On balance, the outlook for real GDP growth over 2023 to 2028 presented in the Fall Economic Statement is slightly weaker compared to PBO’s October outlook, with annual growth averaging, respectively, 1.7 per cent and 1.8 per cent. This slight difference largely reflects more subdued growth over 2024 and 2025 projected by private sector economists.
Nominal GDP in the FES is $32 billion (1.0 per cent) lower per year, on average, over 2023 to 2028 compared to PBO’s October outlook.[^2] This difference reflects both lower short‑term real GDP growth and inflation projected by private sector economists in the FES.
The unemployment rate projected in the FES averages 5.9 per cent, which is 0.2 percentage points higher than PBO’s October outlook. That said, on balance, private sector economists forecast faster employment growth over the medium term.[^3] Consequently, the higher unemployment rate reflects higher labour force participation underlying the private sector forecast.
The Fall Economic Statement includes scenarios that consider faster or slower growth tracks relative to the private sector forecast.[^4] PBO supports the use of scenario analysis to illustrate uncertainty and risks to the baseline projection. To illustrate uncertainty surrounding our October economic and fiscal outlook, we constructed distributions of possible future outcomes that are centred on our baseline projection. These distributions are presented as fan charts in the October EFO for key variables such as real GDP and the federal debt-to-GDP ratio.
Fiscal outlook
Relative to the 2023 Budget, the Fall Economic Statement included $20.7 billion in net new measures over 2023-24 to 2028-29. This represents an increase in (net) new spending of $7.0 billion compared to PBO’s October outlook.
When put on a comparable basis (that is, our October projection adjusted for new measures), PBO’s projected budgetary deficits are $6.1 billion lower annually, on average, over 2023-24 to 2028-29 (Table 2).
In 2023-24, PBO’s adjusted budgetary deficit is $8.5 billion higher, largely due to higher other transfer payments, due in part by unanticipated downward revisions detailed in the Fall Economic Statement. Excluding new measures, other transfer payments in the FES were revised down by $4.2 billion in 2023-24 due to “lower anticipated offshore oil and gas royalties returned to provinces” and “revised timing and spending against previously announced measures”.
Over 2024-25 to 2028-29, PBO’s adjusted budgetary balance outlook shows lower deficits compared to the Fall Economic Statement mainly due to lower projected public debt charges[^5] and other transfer payments,[^6] which are partially offset by lower projected other revenues.[^7]
New measures
Revisions to the private sector economic outlook and fiscal developments in the Fall Economic Statement lower the outlook for the budgetary balance by $18.7 billion (or $3.7 billion per year, on average) over 2023-24 to 2027‑28 relative to Budget 2023.[^8]
In addition, the Government announced $23.6 billion in new spending that was partially offset by $2.9 billion in “refocusing and reallocation” spending measures. On a net basis, new measures further reduce the budgetary balance by $20.7 billion[^9] (or $3.4 billion per year, on average) over 2023-24 to 2028-29 (Table 3).
In the absence of the $20.7 billion in (net) new spending, the budgetary deficit would be $3.4 billion lower each year, on average, over 2023-24 to 2028-29 and the debt-to-GDP ratio would be 0.6 percentage points lower in 2028‑29 than projected in the Fall Economic Statement, all else equal.[^10]
Since Budget 2021, the Government has projected a total of $212.8 billion in new fiscal room.[^11] Essentially all of this fiscal room has now been exhausted through increased spending (on a net basis), with only $0.5 billion used to reduce the deficit (on a cumulative basis). Of the $212.8 billion in new fiscal room, $188.8 billion (89 per cent) has been used finance new non-COVID‑19 measures over 2021-22 to 2028-29.
In the absence of new non-COVID-19 measures since Budget 2021[^12], the budgetary deficit over 2023-24 to 2028-29 would be $21.8 billion lower each year, on average, and the debt-to-GDP ratio would be 3.7 percentage points lower in 2028-29 than projected in the FES, all else equal.[^13]
Spending reviews
Since Budget 2022, the Government has announced multiple spending reviews, which have evolved in scope and scale. Initially, Budget 2022 announced the launch of two reviews. The first, “Reducing Planned Spending in the Context of a Stronger Recovery”, planned to re-examine previously announced spending plans.[^14] The second, “Strategic Policy Review”, included two distinct streams to “assess program effectiveness” and to “identify opportunities to save and reallocate resources”.
In Budget 2023, the Government cancelled the Strategic Policy Review announced in Budget 2022, and instead announced its plan to refocus government spending to identify $15.4 billion in savings over 2023‑24 to 2027-28.[^15] These new reviews plan to identify $6.4 billion in incremental savings relative to the Strategic Policy Review announced in Budget 2022.[^16]
While the Government has provided some information on the planned savings of $500 million in 2023-24 for reducing spending on consulting, professional services and travel, there is no information on the remaining $14.9 billion in planned savings, as well as details on the potential impact on programs and services.
The 2023 Fall Economic Statement further expands on this Budget 2023 commitment to refocus government spending, with the goal to identify an additional $2.4 billion in savings over 2025-26 to 2028-29. A complete list of spending reviews is provided in Table 5.
The FES notes that further updates will be “available in the Estimates and Departmental Plans over the course of the 2023-24 fiscal year”. However, there is currently no information available on the status of these measures, for the current fiscal year, through the first eight months. Further, the next Estimates document and Departmental Plans, which may provide details, will not be tabled until near the end of the fiscal year. Therefore, parliamentarians may not have this additional information on the $3.6 billion in savings until the fiscal year is almost over.
Given the lack of information currently available, parliamentarians may wish to request additional details about the Government’s refocusing and reallocation plans, including the status or results of the programs impacted (if any).
Fiscal anchor
The Fall Economic Statement reaffirmed the Government’s commitment to its fiscal anchor of reducing the federal debt as a share of the economy over the medium term. Based on the outlook presented in the FES, the federal debt-to-GDP ratio is projected to increase, remaining above its 2022-23 level of 41.7 per cent for three years, before gradually declining over the medium term to reach 39.1 per cent in 2028-29.
The Government also introduced the fiscal “objective” of keeping deficits below 1 per cent of GDP in 2026-27 and future years.[^17] Based on the FES outlook, the deficit is projected to reach 0.8 per cent of GDP in 2026-27 and decline further to 0.5 per cent in 2028-29.
Given the private sector economic outlook and the Government’s fiscal projection in the FES, using our fiscal sensitivities, we construct distributions of future possible outcomes to calculate confidence intervals.
On a status quo basis—that is, without additional measures and given possible economic outcomes surrounding the private sector outlook—we estimate that a 70 per cent confidence interval for the federal debt-to-GDP ratio in 2028-29 would be approximately ±5 percentage points (Figure 1). We estimate that there is a 70 per cent chance that the federal debt-to-GDP ratio in 2028-29 would be below its 2022-23 level of 41.7 per cent.
Finance Canada;
Statistics Canada;
Office of the Parliamentary Budget Officer.
Finance Canada;
Statistics Canada;
Office of the Parliamentary Budget Officer.
The series are presented on a fiscal-year basis (2021 corresponds to fiscal year 2021-22). The projection period covers 2023-24 to 2028-29. The red line corresponds to the baseline level of the federal debt-to-GDP ratio in 2022-23.
We also construct confidence intervals for the budgetary balance relative to GDP (Figure 2). On a status quo basis, we estimate that a 70 per cent confidence interval for the budgetary balance-to-GDP ratio in 2028-29 would be approximately ±1 percentage point. We estimate that there is a 70 per cent chance that the deficit-to-GDP ratio in 2028-29 would be below the Government’s limit of 1.0 per cent of GDP.
Finance Canada;
Statistics Canada;
Office of the Parliamentary Budget Officer.
Finance Canada;
Statistics Canada;
Office of the Parliamentary Budget Officer.
The series are presented on a fiscal-year basis (2021 corresponds to fiscal year 2021-22). The projection period covers 2023-24 to 2028-29. The red line corresponds to the Government’s limit of 1 per cent of GDP.
On a status quo basis, we estimate that a 70 per cent confidence interval for the budgetary balance in 2028-29 would range from a deficit of $49.1 billion to a surplus of $12.1 billion, with a 25 per cent chance of a balanced budget or better.
Fiscal transparency
This year the Public Accounts were tabled on October 24—seven months after the close of the fiscal year. Canada falls short of the standard for advanced practice in the International Monetary Fund’s (IMF) financial reporting guidelines, which recommends that governments publish their annual financial statements within six months of the end of the fiscal year (September 30th in Canada’s case).[^18] While the Independent Auditor’s Report for the Public Accounts concluded on September 7, it took another 47 days before the Public Accounts were tabled in Parliament.[^19]
In comparison, seven of the provinces released their audited consolidated financial statements within six months of the end of the fiscal year, all of which had a mandatory tabling date that fell before the end of September (Table 7).[^20]
Another area in which the Government could improve the timeliness of financial reporting relates to its Departmental Results Reports (DRRs). For fiscal year 2022-23, the DRRs were tabled on November 2, 2023. While this is a significant improvement over the past two years, this is still more than 7 months after the close of the fiscal year.
Although this year saw improvement in the tabling dates of Public Accounts and the DRRs, parliamentarians may wish to request that the Government publish the Public Accounts and the Departmental Results Reports within six months of the close of the fiscal year.[^21] This would inform Parliament and Canadians earlier about the Government’s year-end financial position, providing parliamentarians with more time for ex-post financial scrutiny and better information for assessing the Government’s budget plans and estimates.