OTTAWA The federal budget is in the final stages of drafting as the Liberal government closely monitors financial market turmoil over US banking problems and ongoing concerns that a recession could still hit the economy Canadian.
Deputy Prime Minister and Finance Minister Chrystia Freeland met in several meetings with Canada’s banking leaders, the financial regulator and provincial finance ministers in the days after the collapse of a major US-based bank to assess the consequences and decide whether to take further action. necessary.
His blueprint for how the federal government will deal with economic uncertainty, however, is largely done and, according to experts who spoke to the Star, framed around four main themes: affordability, health care (including big spending on dental care ), Canada’s economy “competitiveness” and “fiscal strength”.
Senior government sources, speaking only background, said that while the emphasis in the final budget could still change, the government will continue to target the people who are most affected by the rising cost of living and will use federal dollars. for longer-term needs like health care, housing, child care, and the “clean economy.”
It acknowledges the increased likelihood of a recession compared to last year and while the turmoil in banking circles is seen as a big new complication, government sources said the situation is not like the 2008-09 global financial crisis that sparked a deep economic decline. .
The March 28 budget is “not a giveaway budget” that will sprinkle a lot of money into “stuff and knick-knacks” for everyone, according to sources who spoke to Star.
One source suggested the government could support communities still struggling to recover tourism and business after the pandemic, but it was unclear how.
Sources with knowledge of budget planning said the government will not spend or pump more money into the economy in a way that runs counter to the Bank of Canada’s battle to use higher interest rates as a way to reduce inflation.
The view is that if the government offers only targeted support, helping to set the conditions for interest rates to fall, then that helps everyone. “That’s his kind of natural exit strategy,” a source said.
Last fall, the NDP lobbied, and the Liberals delivered, an expanded $500 one-time benefit for low-income renters and a doubled GST tax credit for Canadians and low-income families. Into this budget, as the Star has reported, the Liberals will pump billions to expand dental care.
Robert Asselin, senior vice president for policy at the Business Council of Canada, said Trudeau and Freeland face a political challenge in figuring out how to spend enough to address affordability concerns without risking credibility in fighting inflation. Asselin said that while the economic imperative to grow Canada’s green energy sector is real, for most Canadians the policies required to do so—tax regimes, various funds and spending programs—are highly abstract.
“This is not an easy budget to sell, but it is necessary,” he said.
Meanwhile, a public spending review announced last year is underway. One official suggested that amid criticism over the millions Ottawa spends outsourcing advice to private sector consultants, a limit on the hiring of outside consultants could be expected.
However, the government is unlikely to meet the demands of business and Tories to tightly control spending, arguing that Canada is on a sustainable path with better G7 finances.
The reality is that economic uncertainty is still driven by the war in Ukraine, its impact on energy and commodity prices, and disruptions in the global supply chain, even as pandemic restrictions ease in countries like China, and governments and banks around the world are trying to coordinate. a response to prevent the collapse of world economic confidence.
Then there are the investment dollars drawn into the United States, where the Biden administration is offering massive tax credits and supports for clean energy developments through its $370 billion Cut Inflation Act package.
Ottawa has already won a “game” in North America for Biden’s Buy-American plan, securing access for Canadian manufacturing of electric vehicles and critical mineral supplies. But the US is showing its muscle and offering big incentives to companies setting up shop south of the border. Freeland’s fall tax economic filing revealed two tax credits, for hydrogen and clean-tech projects, that were a “demonstration of a much larger package to come” in response to the Americans, a source said.
Because Canada cannot compete with the level of US spending, it must adapt to it and take a “selective” approach to the types of incentives and support it will offer, as will be revealed in the budget around the deal with Volkswagen to build a electric vehicle battery plant in St. Thomas, Ontario. – to attract projects here, the sources said.
Volkswagen plans to start production in 2027, so the time frame for the promised federal support to kick in may be long term.
The Volkswagen project is touted as the anchor of a new supply chain, so the government will promote its incentives as valuable in the long run due to job creation and future government revenue.
Flavio Volpe, president of the Association of Automotive Parts Manufacturers, said that although details were not given Monday, projects like the one VW is planning can create around 2,500 jobs in a factory, with another 5,000 jobs derived through indirect suppliers of the project.
In Montreal on Monday, Trudeau outlined his government’s budget approach, saying he believes in supporting “disadvantaged” communities and people who face economic, geographic or cultural “barriers.” He questioned calls for the government to “invest more in entrepreneurs” or to create a “competitive structure where those who have fewer opportunities will have to learn to manage a little better.”
And even though Trudeau has signed childcare and health care deals with every province, he was harshly critical of Conservative prime ministers, saying “if people continue to vote for provincial premiers who are Conservative, it’s extremely difficult for we change this approach. ”
On Friday, Trudeau also urged municipalities to step up, particularly on affordable housing, and use a $4 billion federal housing “accelerator” fund to ease exclusionary zoning, expedite permit approvals and free up undeveloped land. More affordable housing is a big call from New Democratic Party leader Jagmeet Singh, who continues to support Trudeau’s minority government.
Conservative leader Pierre Poilievre criticized Trudeau on Friday, blaming government spending for “inflationary deficits that forced the Bank of Canada to raise mortgage interest rates.”
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