Well, the Federal Fall Economic Statement for 2023 is out and soon to be relegated to the collections of fiscal and economic history. There is a lot out there summarizing the economic and fiscal situation facing the federal government. Briefly, for 2023-24 it looks like revenues of $456 billion and expenditures of $489 billion for a deficit before actuarial losses of $32.5 billion and a deficit with actuarial losses of $40 billion. Inflation this year will be about 3.8 percent and next year the outlook is for 2.5 percent while real GDP growth in 2023 is now forecast to end up at a lower 1.1 percent and for next year at a paltry 0.4 percent. On the bright side, there are measures to create more housing, but they add up to perhaps 300,000 homes by 2031 which given the country apparently needs 3.5 million means the housing shortage is going to be around for some time to come.
Two things the numbers on the fall statement do not highlight. First, when one factors in population growth going forward at about 2.5 percent annually and the government's inflation and GDP growth forecasts, real per capita GDP is going to continue declining over the next five years. As Figure 1 shows, by 2028, inflation adjusted output per person by 2028 will be lower than it was in 2014. Given the anemic business investment in Canada and the resulting weak productivity performance of the Canadian economy and its inability to grow faster than population, falling real GDP per person means a declining standard of living. We are looking at essentially a lost decade or more if nothing happens to ramp up growth.
Second, a fiscal anchor or guardrail set as a deficit to GDP ratio of 1 percent means that there will be perpetual deficits for years to come of at least 30 billion dollars. Put more starkly as Figure 2 illustrates, federal revenues and expenditures will continue to grow in tandem like ships traveling alongside in the night but never actually meeting. This will result by 2028 in a net federal debt of almost $1.5 trillion and debt service costs of about $60 billion annually which as a share of federal revenue will account for about 10 percent of revenue.
Needless to say, it is not surprising that these types of projections are not front and centre from the perspective of a government facing slowing growth and rising spending.
