Canada to add spending for housing amid slow growth and high debt payments

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By Steve Scherer

OTTAWA, Nov 21 (Reuters) -Canada Finance Minister Chrystia Freeland on Tuesday is set to deliver a midyear 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 inflationary pressures.

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.

The FES will also include a tax measure to crack down on profit making from short-term rental services like Airbnb ABNB.O, 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 Conservative rival, 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 still go higher if inflation - at 3.8% in September - 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 compete with the United States for green investment.

($1 = 1.3718 Canadian dollars)

Reporting by Steve Scherer in Ottawa
Editing by Matthew Lewis


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