Canada’s finance minister warned of a difficult exit from the pandemic as soaring prices and rising rates put pressure on consumers, but said the government is doing everything it can to ease the burden on families.
“I do not underestimate the economic difficulties and uncertainty of the coming months,” Finance Minister Chrystia Freeland said in prepared remarks at the Empire Club of Canada in Toronto on Thursday.
“We have been through two years of remarkable turbulence,” he said. “Our challenge now is to land the plane. A soft landing is not guaranteed. But luckily for us, there is no country in the world better positioned than Canada to do it.”
The finance minister prioritized the central bank’s role in lowering prices, and officials embarked on an aggressive series of interest rate hikes. He also stressed the need for politicians to avoid “undermining Canada’s fundamental institutions,” an implicit rebuke of the favorite to lead the main opposition Conservative Party, who has vowed to fire the governor of the Bank of Canada.
SUPPLY SIDE
Inflation “is a global phenomenon, driven by factors for which no country is responsible and from which no country can isolate itself,” Freeland said. But he argued that Prime Minister Justin Trudeau’s government has a role to play in implementing policies to “make it easier by addressing the supply constraints that are driving up prices.”
It’s doing it in four ways, he said: by investing in training, keeping spending in check, creating jobs and targeting aid to low-income households.
Freeland highlighted programs that include increased old-age benefits, a one-time payment of $500 ($387) to people struggling with housing costs, and the government’s world-class child care program that will lower rates by up to by 50 percent for most. families at the end of the year.
He also pointed to his government’s decision to index many benefits to inflation, including the Canada Pension Plan and old-age security payments.
Canada’s fiscal response during the pandemic pushed program spending to almost 30 per cent of gross domestic product. While the administration resisted adding new spending to its April budget, Freeland’s department forecast spending to remain elevated about 16 percent over the next year, higher than the 13 percent average in the two decades before the pandemic.
Freeland emphasized that programs aimed at easing the inflationary burden have already been budgeted for and said the administration is focused on fiscal restraint. “I am determined to see our debt-to-GDP ratio continue to decline and our deficits continue to shrink. Our pandemic debt must, and will be, paid off.”
Speaking to a roomful of Toronto’s business class, Freeland referenced the fact that many economists had projected much higher spending in the budget.
“I know that my fiscal prudence surprised many in this room,” he said. “Yes, I read your predictions. This fiscal restraint was very intentional. At a time when inflation was high, we knew we had to be careful not to increase aggregate demand.”
Reference-www.bnnbloomberg.ca