Canada to hike spending on housing amid slow growth and high debt payments By Reuters

By Steve Scherer

OTTAWA (Reuters) -Canada Finance Minister Chrystia Freeland on Tuesday is set to deliver a mid-year fiscal update that will show widening deficits and weak economic growth and include targeted spending to boost housing supply.

With interest rates at a two-decade high and inflation still elevated, Prime Minister Justin Trudeau’s Liberal government is under pressure to curb spending, which the central bank warned is stoking inflation.

Freeland is due to present the Fall Economic Statement (FES) to the House of Commons after 4 p.m. EST (2100 GMT).

“More spending is likely, along with bigger deficits,” said Derek Holt, vice president of capital markets at Scotiabank, in a note.

This year’s deficit will be higher than forecast in the March budget mainly because of electric-vehicle maker subsidies, new federal civil-servant contracts and higher-than-expected interest rates, Holt said.

The Canadian Broadcasting Corp reported on Monday the FES will include C$15 billion ($10.9 billion) in 10-year loans for new rental housing construction, a C$1 billion fund dedicated to building more affordable housing, and new mortgage rules for lenders dealing with homeowners at risk.

“We’re stepping up massively on housing in ways that are going to help… both buyers and renters right across the country in the coming years,” Trudeau told reporters on Tuesday.

“We’re going to be moving forward on more competition measures to keep the prices of groceries in the affordable range, and we’re also moving forward on jobs and careers with a green industrial strategy,” Trudeau added.

The FES will also include a tax measure to crack down on profit making from short-term rental services like Airbnb, the Toronto Star reported on Sunday. Housing Minister Sean Fraser on Monday confirmed the government is considering such a measure.

Many Canadians are dealing with higher living costs and housing affordability has emerged as the main criticism against the government. Opinion polls show Trudeau is badly trailing his main rival, Conservative leader Pierre Poilievre, though an election is not due until 2025.

Freeland has promised to use the FES to try to boost housing supply and to help Canadians struggling with inflation.

The Bank of Canada hiked rates to a 22-year high of 5.00% between March of last year and July of this year. It has since held them steady, but warned that they could go higher if inflation – at 3.1% in October – does not come down to its 2% target.

Canada’s government will present legislation alongside the FES 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 help the country spur green investment and compete with the United States.

($1 = 1.3718 Canadian dollars)