Finance Minister Chrystia Freeland announced that she will table her 2023 budget on Tuesday, March 28, a document private-sector economists say should feature a fiscally cautious approach after several years of emergency deficit spending during the pandemic.
Ms. Freeland, who is also Deputy Prime Minister, made the announcement Friday in the House of Commons.
The underlying numbers of federal budgets are based on an average forecast from private-sector economists in areas such as projected growth and inflation. Ms. Freeland met privately with some of those economists Thursday in Toronto, where they offered their views on the direction of the economy and suggestions for the budget.
Four economists who attended the meeting later told The Globe and Mail that Ms. Freeland has little room for new spending and the budget should be careful not to fuel inflation.
“The fiscal situation is very tight right now,” said Conference Board of Canada chief economist Pedro Antunes. “We essentially have overspent through the pandemic. We have a higher debt load. We have interest rates coming up. We have, already, a bunch of commitments. I think we need to keep that in mind. And certainly we don’t want to spend more when inflation is on a tear.”
Similar views were expressed by RBC chief economist Craig Wright, BMO chief economist Doug Porter and Randall Bartlett, senior director of Canadian economics with Desjardins.
“We can’t keep spending like we have been forever,” said Mr. Wright, who suggests that any new announcements should be paid for by internal savings elsewhere.
“There are a lot of opportunities to rightsize some areas of spending,” he said.
Mr. Porter said he delivered a similar message to the minister.
“I believe fiscal policy has a pretty important role to play here in helping quell inflation. So I think a modest spending track is the way to go,” he said.
Ms. Freeland said earlier this week that measures related to reducing emissions and supporting health care will be two areas of focus in the 2023 budget. She also said that a third element will be the need for fiscal restraint, pointing to concerns about inflation and high interest rates.
The 2023 federal budget is expected to include new details on Canada’s response to the U.S. Inflation Reduction Act, which contains billions in tax breaks and other incentives south of the border to encourage emission reduction efforts.
Also Friday, the House of Commons finance committee released a prebudget report after weeks of public hearings. MPs also received more than 700 briefs from interest groups seeking specific items in the budget. The report makes 230 recommendations, many of which would be costly, but the committee does not attempt to put a total price tag on its advice.
The volume of spending recommendations from the committee is at odds with the prebudget advice of private-sector economists.
The report references the U.S. legislation and includes several environmentally focused recommendations, including new purchase incentives for zero-emission vehicles. One suggestion is a “green cash for clunkers” program that would provide trade-in cash that can be put toward an electric vehicle, a transit pass or a new bicycle. The committee also recommends support for a zero-emission electricity grid and to “align Canada’s nascent net-zero fiscal support framework to match the ambition of the United States.”
The committee also recommends a repayment amnesty for low-income people who received the Canada Emergency Response Benefit during the pandemic.
The Conservative committee members submitted a dissenting report with just two recommendations: No new taxes and stop the spending.
“This Liberal government must rein in their inflationary deficit spending and address their ballooning debt. The federal government cannot saddle future generations with borrowing for current spending and must work toward a balanced budget,” the Conservatives wrote.
The Bloc Québécois and the NDP both submitted “supplementary” reports with additional recommendations.
The NDP, which is part of a supply and confidence agreement with the minority-government Liberals, said in its report that it is pleased with many of the main report’s recommendations.
“The recommendation to implement a CERB low-income repayment amnesty is of particular importance,” the party said. “We also welcome recommendations for funding dental care, pharmacare and better long-term care for Canadians that need it.”
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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