Analysis | The size of the deficit, the unpleasant surprise of Chrystia Freeland’s next budget

(Ottawa) The federal budget is due Tuesday, April 16. For several days, Justin Trudeau and the Minister of Finance, Chrystia Freeland, have been traveling the country to slowly unveil some of the measures that will be included there. Unheard of on the federal scene.

But the most important chapter of the upcoming budget will undoubtedly be the one which will reveal the size of the deficit. In this regard, the news could be bad. Just a few months ago, Minister Freeland argued in her economic statement that the deficit would not exceed $40 billion for the 2023-2024 fiscal year, which ended March 31.

It turns out that when presenting her economic statement, the minister was forced to revise upwards the projection of deficits for the next five years that she had submitted in her budget tabled eight months earlier. She then agreed that the slowdown in the Canadian economy and the rise in interest rates were weighing down Ottawa’s finances more than expected.

However, the parliamentary budget officer, Yves Giroux, made new calculations at the beginning of last month. According to him, the deficit for the last financial year should instead stand at $46.8 billion, almost $7 billion more than forecast last November. Behind the scenes, some argue that the shortfall could be even higher, and could approach $50 billion.

In his recent report, Mr. Giroux said he expected growth in the Canadian economy to remain “sluggish” throughout the year, due in particular to the restrictive monetary policy adopted by the Bank of Canada to overcome inflation. Even though a first cut in the key rate is expected in June, current monetary policy represents a serious brake on consumer spending.

The Parliamentary Budget Officer also forecasts that the deficit will be higher in 2024-2025 than what Minister Freeland predicted in November. This deficit should be $40.8 billion, more than the shortfall of $38.4 billion projected by the big money maker. But Mr. Giroux’s estimates assume that no new measures will be introduced by the Trudeau government.

This Tuesday, Manitoba will become the last province to present its budget. Normally, it is the federal government that launches the budget season and confirms major transfers to the provinces. This year, he will be the last to unveil his budget plan.

So far, the majority of provinces, except Alberta and New Brunswick which have surpluses, have tabled budgets with increasing deficits. In Quebec, the Legault government presented a budget showing a record deficit of $11 billion, almost four times larger than the shortfall of $2.9 billion forecast last year.

In Ontario, the Ford government also missed its target by presenting a budget which announced a deficit of 9.8 billion dollars while we were counting on a surplus of 200 million in the forecasts revealed 12 months ago.

In British Columbia, the deficit also exploded. At $7.9 billion, it is expected to be about twice as large as the $3.8 billion that was projected last year.

Result: if deficits are on the rise this year in these three important provinces because of the slowdown in the economy, we can expect them to also be so in Ottawa. Especially since the Trudeau government, lagging behind in the polls, has little intention of restricting spending approximately 18 months before the next federal election.

While in Toronto on Monday, Prime Minister Justin Trudeau and Minister Chrystia Freeland continued the Liberal pre-budget scouring by announcing an investment of $1 billion over five years in a national school food program. This measure will be in the next budget and should make it possible to provide meals to 400,000 more children each year.

On Saturday, Minister Freeland also confirmed that Ottawa will lay the first foundations for a national drug insurance program in the next budget which will include coverage of contraceptives and certain medications for diabetes. Last week, we announced measures for housing and daycare. Everything indicates that other measures will be announced by the Prime Minister and the Minister by April 16.

“The federal government has a problem: it spends too much. Not only has he been unable to control current spending this year, but he is preparing to announce new ones in the next budget. This raises the eternal question of how he plans to pay for all this,” says Goldy Hyder, president and CEO of the Business Council of Canada (BCC), in a recent note.

He raises the possibility that the Trudeau government is scraping the bottom line so much that it would consider imposing a new tax on the profits of large corporations – a measure which would certainly please the New Democratic Party, but which could be more felt in in the pockets of consumers and in the financial balance sheets of large companies.

Since coming to power, the Liberals have never presented a balanced budget. As the next electoral battle approaches, simply controlling the deficit also seems a difficult objective to respect.


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