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Minister of Finance and Deputy Prime Minister Chrystia Freeland speaks to the media in Hamilton, Ont., during the second day of meetings at the Liberal Cabinet retreat, on Jan. 24.NICK IWANYSHYN/The Canadian Press

Chrystia Freeland is emphasizing the need for fiscal restraint as she finalizes her 2023 federal budget, pointing to concerns about inflation and high interest rates as key reasons Ottawa must ease up on new spending.

The federal Finance Minister, who is also Deputy Prime Minister, made her comments at a news conference at a union training centre in Mississauga, where she held prebudget consultations with labour leaders on Wednesday.

“I am very conscious that we’re putting together this budget at a time of meaningful fiscal constraint. And that fiscal constraint is exacerbated by the fact that the Canadian economy is slowing down in response to global conditions and in response to high interest rates,” she said. “Having said those things, we also recognize that we need to invest in Canada and Canadians.”

Ms. Freeland said the budget will need to account for the federal government’s recently announced 10-year plan to increase health transfers to the provinces and territories. She also said the budget will include “additional investments” to ensure Canadian industry can compete with recently announced U.S. programs that offer financial incentives aimed at reducing greenhouse-gas emissions.

“When you take those three things together – significant investment in health care, significant investment in the net-zero economy of the 21st century and the need to be fiscally responsible – you’re talking about some really challenging choices that we’re going to face putting a budget together over the next few weeks,” she said.

Federal finance ministers tend to give strong indications of a budget’s direction ahead of time, in an effort to manage the public’s expectations.

The minister’s comments are in line with her previous references to the budget but are a more direct assessment of what Canadians can expect. The new language appears to be aimed at lowering expectations among Canadians who are hoping for new funding in areas that are not covered by Ms. Freeland’s two stated priorities: health care and the green economy.

As with any federal budget, a wide range of interest groups have made formal submissions to the Finance Department, with billions of dollars worth of funding requests.

The budget is expected to be tabled in the next few weeks, but a date has not yet been announced.

Also on Wednesday, the Bank of Canada announced it was holding its benchmark interest rate steady at 4.5 per cent, a pause that follows eight consecutive rate hikes since March, 2022. The higher rates are intended to cool inflation, but Ms. Freeland acknowledged that many Canadians are struggling with higher costs of living.

“Taken together, inflation and higher interest rates are really challenging for a lot of people,” she said. “That means that one of my government’s principal responsibilities, and one of my principal responsibilities, is not to pour fuel on the flames of inflation. I think we all want to get past this as quickly as we can. So fiscal responsibility is really important.”

Parliamentary Budget Officer Yves Giroux released an economic and fiscal outlook report last week that provides an independent assessment of the state of federal finances.

The PBO’s report projects that the deficit for the current fiscal year will be $36.5-billion – down from $90.2-billion the previous year. The PBO projects the deficit will then rise to $43.1-billion in the fiscal year that begins April 1, before declining steadily in future years.

The PBO’s forecasts do not attempt to account for potential new spending announcements in the 2023 budget.

Ms. Freeland’s fall economic statement provided two sets of fiscal projections: a baseline projection, and then a more pessimistic “downside” scenario.

The government’s baseline scenario projected a $36.4-billion deficit in the current 2022-23 fiscal year, or $49.1-billion under the downside scenario.

The 2023 budget follows three years of substantial deficit spending driven by the COVID-19 pandemic. As a result of those deficits, the federal debt-to-GDP ratio was 45.5 per cent last year, up from 31.2 per cent in 2019-20.

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