OTTAWA - The federal government announced $59.5 billion of new spending over the next five years as part of a narrowly focused budget that also promises to find savings in the public service and increase tax revenues.
Finance Minister Chrystia Freeland’s budget, tabled in the House of Commons, has three main focuses: the clean economic transition, health care and cost-of-living relief.
To finance these priorities, the Liberals are promising to find $9.8 billion of savings within the public service. They also are introducing a range of tax measures, including ones aimed at wealthier individuals and corporations, that together would increase revenues by $11.7 billion.
At a time of high inflation and a slowing economy, Freeland had promised fiscal restraint and reiterated that commitment Tuesday.
"Our country has a proud tradition of fiscal responsibility. That is a tradition we are determined to uphold," Freeland said in a speech in the House of Commons while presenting the budget.
The federal deficit is projected to decrease to $14 billion by 2027-28 from $43 billion, while the debt-to-GDP ratio is expected to rise slightly in the coming year before falling to 39.9 per cent in 2027-28, down from 42.4 per cent.
Desjardins’ chief economist Jimmy Jean said the budget shows the federal government is trying to "strike a balance" to not fuel the flames of inflation. The host of affordability measures, which includes an additional boost to the GST rebate, are considered to be relatively modest.
"But at the same time … you’re not seeing the deficit close by the end of the projection (period)," Jean said.
Canada's debt-to-GDP ratio is expected to rise in 2023-24 to 43.5 per cent, then decline to 39.9 per cent in 2027-28. The federal government’s fiscal decisions are supposed to be guided by its fiscal anchor, which is a declining debt-to-GDP ratio in the medium term.
Rebekah Young, director of fiscal and provincial economics at Scotiabank, said she didn't find the budget to be fiscally restrained. Given the uncertainty in the economic outlook, Young said the federal government could have limited spending to "the bare bones."
On affordability, Young said the measures don't addressing housing, which poses as a major cost-of-living challenge that's not going to go away when inflation eases, and that some of the money could have been better spent elsewhere.
"There are areas where they could use some of this funding to increase the supply of social housing or the public provision of actual housing," Young said, adding that this approach would have gone further than simply addressing short-term inflation pressures.
To alleviate the pressure of rising grocery prices, the federal government has extended the GST rebate boost offered in the fall. The rebate, which will go to lower income Canadians, will deliver up to $234 to a single person and up to $467 to a couple with two children.
We’re creating a new Grocery Rebate to provide support to 11 million Canadians. We’re also going to crack down on junk fees – the unexpected, hidden fees on everyday goods and services. And we’re going to lower credit card transaction fees for small business owners, too.
— Justin Trudeau (@JustinTrudeau) March 28, 2023
As the Canadian economy slows, the fiscal and economic projections in the budget have been downgraded from the fall fiscal update to account for a shallow recession this year.
While the Liberals' budget presents a more restrained approach to finances, the projected deficit is at risk of growing if the promised savings aren’t found and the economy slows more than expected. A sharper downturn would mean less tax revenues to finance the government’s priorities.
Jean said the likelihood of a deeper recession has increased amid high interest rates.
"You've got to question what (the Liberals) are going do if there’s a recession that’s deeper than expected," Jean said.
The Bank of Canada has aggressively raised its key interest rate over the last year, bringing it to 4.5 per cent, the highest it’s been since 2007.
High interest rates are already slowing the economy, which posted zero growth in the fourth quarter.
The economic projections in the budget, which are based on a survey of private sector economists, suggest real GDP will grow by 0.3 per cent this year. The government’s downside scenario, which offers a more pessimistic outlook, estimates a contraction of 0.2 per cent.
As the economy slows, the budget projects the unemployment rate will peak at 6.3 per cent by the end of the year. The unemployment rate in February, the most recent month with available data, was five per cent.
The economic projection also finds inflation is expected to fall below three per cent in the third quarter before returning to the Bank of Canada’s two per cent target in 2024.
Jean said the budget also hinges on the federal government following through with public service cuts, an exercise that’s considered challenging. On the tax front, Jean said there’s questions regarding how much the federal government will successfully raise from high-income earners.
"Those are very sophisticated individuals that can find ways to reduce or optimize their taxes," Jean said.
KEY POINTS FROM THE BUDGET
OTTAWA - The federal Liberal government has released a 2023-24 spending plan that prioritizes spending on health care, transitioning Canadian businesses to a clean economy and offering affordability measures to help Canadians dealing with high prices from inflation.
Here are the key highlights from this year’s federal budget:
– $40.1 billion: Projected federal deficit for the coming fiscal year.
– $59.5 billion: New spending over the next five years, with $8.3 billion to be spent over the coming fiscal year.
– $83 billion: The expected cost of tax credits for clean energy and electricity through to the 2034-35 fiscal year. The credits are part of Ottawa’s stated goal to rapidly develop Canada's green economy.
– $13 billion: Expected cost of the Canada dental benefit over the next five years, or $7.3 billion more than the government initially projected.
– $49.4 billion: The amount of health-care cash flowing to provinces and territories in the 2023-24 year.
– $4.5 billion: Expected cost of a clean technology manufacturing investment tax credit over five years.
– $2.5 billion: The cost of another one-time doubling of GST rebates this financial year to help low-income Canadians who are struggling with high prices and inflation. The government has dubbed this measure a "grocery rebate," a nod to high food prices.
– $4 billion: How much the federal government says it plans to spend over seven years on an urban, rural and northern Indigenous housing strategy, beginning in 2024-25. But only $1.9 billion is expected to be spent in the next five years.
– An unknown amount: Finance officials would not specify how much Ottawa spent in an agreement with Volkswagen that will see the company build a battery manufacturing plant, called a "gigafactory," in St. Thomas, Ont. They said more details will be revealed in the weeks to come. The budget document stipulates that the expected costs are accounted for in this year's spending tables. Measures not yet announced have a line item in the budget that accounts for decisions related to commercial sensitivity, but the number is presented as an aggregate.
– $158 million: Funding over three years, starting this year, to create and operate a new 9-8-8 suicide prevention phone line.
– $14 per $100: What the federal government says will be the new maximum amount that payday lenders can charge people for the amount they borrow. The budget says a Criminal Code amendment will be made to that effect, while the government also intends to lower the maximum interest rates payday lenders can charge to an annual percentage rate of 35 per cent.
– "Reciprocal treatment": What Ottawa is announcing consultations about in response to the U.S. Inflation Reduction Act, which threatens to freeze out Canadian businesses, including green technology firms, from tax credits offered south of the border.
– $56 million: Spending allocated for "protecting diaspora communities and all Canadians from foreign interference, threats and covert activities." The budget announces funding for the RCMP to investigate foreign interference allegations, and says Public Safety Canada will stand up a new National Counter-Foreign Interference Office to respond to any attempted meddling by Russia, China and Iran.
– $200 million: The amount the government aims to provide to the Department of National Defence so the Canadian military can donate equipment to assist Ukraine, including the eight Leopard 2 battle tanks that the government previously announced it would deliver.
– Anti-scab legislation: The government is proposing to amend the Canada Labour Code to prohibit the use of replacement workers during a strike or lockout, fulling a commitment the Liberals made to the federal NDP in their supply-and-confidence agreement.
