The federal government announced a move to ease limits for pension funds investing in Canadian companies in its latest fiscal update, along with responses to tariff threats from the U.S. and other moves aimed at competing for capital.
On Monday, the federal government unveiled its fall economic statement amid turmoil in Prime Minister Justin Trudeau’s cabinet. Building on a previous announcement last week, the government said it intends to remove restrictions on pension funds in an effort to spur domestic investment.
“The 2024 Fall Economic Statement announces the federal government’s intent to amend regulations to remove the 30 per cent rule for investments in Canadian entities,” the government said in its fiscal update.
“This will make it easier for Canadian pension funds to make significant investments in Canadian entities. During the development of regulatory amendments, the federal government will consult with provinces on the treatment of provincially regulated pension plans.”
According to Ottawa, the move will make it easier for Canadian pension funds to make major investments in Canadian companies.
Finance Minister Chrystia Freeland announced her resignation in a letter posted on social media from Prime Minister Justin Trudeau’s cabinet hours before she was scheduled to deliver a fiscal update on Monday. She stated in the letter that the decision came after Trudeau offered her a different position.
In the letter, Freeland highlighted risks to the Canadian economy coming from tariff threats from U.S. President-elect Donald Trump. She said Canada needs to keep its “fiscal powder dry,” adding that the government should avoid “costly political gimmicks” it cannot afford given the current situation.
Fight for capital
Freeland announced the intention to remove the cap on Canadian pension funds last week, according to Bloomberg News. She said in a statement Friday that the announcement comes amid rising “economic nationalism” where competition for capital has intensified.
“Canada needs to fight harder than ever for capital, including facilitating and supporting the investment of Canadian capital here at home. This is key to the future prosperity of all Canadians,” she said.
Freeland’s removal of the pension cap comes as Canada grapples with issues related to lagging productivity and weak business investment.
The fall economic statement highlights that Stephen Poloz, the former Bank of Canada governor, was asked to explore ways to “catalyze greater domestic investment opportunities” for pension funds in the government’s previous budget.
The government also announced other changes related to Canadian pension fund operations in its fiscal update.
This includes the fact that Ottawa is exploring lowering the 90 per cent threshold limiting municipal-owned utility companies from attracting private sector ownership of more than 10 per cent.
“Lowering this threshold for Canadian pension funds would allow them to acquire a higher ownership share in these entities. For example, municipally owned electricity utilities would be able to access more capital to meet future demand and expand electricity production and distribution grids,” the fall economic statement reads.
Additionally, the government announced it is currently consulting on potential regulations to increase transparency for large federally regulated pensions.
“This would require the Office of the Superintendent of Financial Institutions to publish the distribution of investments, by jurisdiction and asset class within each jurisdiction, of federally regulated pension plans with assets under management greater than $500 million,” the government said in the fiscal update.
The government also proposed to launch a fourth round of the Venture Capital Catalyst Initiative, making $1 billion in funding available next year with more favourable terms for pension funds or institutional investors.
Tariff threat response
The federal government’s fall economics statement comes on the heels of trade tensions with the U.S., with Ottawa saying it is focused on countering the threat in its fiscal update.
Last week, Freeland said Trump and his administration are attempting to foster a sense of economic uncertainty outside the U.S. as part of a strategy to “discourage investment anywhere other than the United States.”
“Canada is going to fight for Canada. Our government is fighting for Canadian job,” she said.
Trump has threatened that the 25 per cent tariff on both Canadian and Mexican imports will be implemented unless both countries address issues related to the U.S. border and crack down on fentanyl and illegal migration into the U.S., according to Bloomberg News.
The fall economic statement proposed measures to enhance border security with a $1.3 billion package over six years starting in 2024-25 to various organizations including the Canada Border Services Agency and the Royal Canadian Mounted Police.
Canada’s federal and provincial governments are figuring out ways to navigate Trump’s threat to impose 25 per cent tariffs on all Canadian imports during his first day in office in January, The Canadian Press reported last week. Ontario Premier Doug Ford also stated last week that Ottawa was preparing potential tariffs in retaliation, as well as threatened to limit electricity exports from Ontario.
However, the provinces don’t appear to be moving in unison on the issue as Alberta Premier Danielle Smith said the province would not agree under any circumstances to cut off oil and gas exports to the U.S.
‘Economic hit’
Ahead of the release of the fall economic statement, James Orlando, a director and senior economist at TD Economics, said in an interview with BNNBloomberg.ca last week that many are trying to figure out the impact tariffs could have on Canada’s economy.
“The thing that we’re dealing with right now in economics departments is that we are trying to figure out how much of an economic hit we’re going to have in Canada as a result of potential tariffs,” he said.
“With the analysis that we’ve done, and everyone else seems to have done, is that it’s very severe like we’re talking about at least a stagnation or even recession in Canada should the worst tariffs come on.”
As a result, Orlando said tariffs could weigh on the federal government’s revenue if enacted.
“Let’s be honest, like Donald Trump’s not even in the White House yet, and the government, in their fall economic statement is looking like they’re going to be doing new policies in preparation for an incoming U.S. president. So, there should be some hard spending promises there,” he said.
With files from The Canadian Press and Bloomberg News