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Deputy Prime Minister and Minister of Finance Chrystia Freeland, responds to a question during a press conference in Ottawa, on Jan. 29.Adrian Wyld/The Canadian Press

Finance Minister Chrystia Freeland signalled that her upcoming 2024 budget will keep the size of this year’s deficit below $40.1-billion as the Liberal government faces competing pressures to both spend more and exercise restraint so as not to fuel inflation.

Speaking with reporters Tuesday at a news conference in Ottawa, Ms. Freeland, who is also Deputy Prime Minister, provided an indication of the direction for future spending.

“We laid out a clear set of fiscal guideposts in the fall economic statement and we will meet those guideposts,” Ms. Freeland said.

November’s fall economic statement included three specific targets: keep the size of the deficit for the current fiscal year below $40.1-billion, lower the debt-to-GDP ratio in 2024-25 and keep it on a declining track thereafter and keep annual deficits below 1 per cent of GDP from 2026-27 and beyond.

The date of the budget has not yet been announced. Budgets are typically tabled in late March and Parliament only sits for one full week in March – the week of March 18. If it isn’t tabled that week, it would push the budget into April, which is uncommon.

During the news conference, Ms. Freeland said housing, affordability and economic growth are the key themes that emerged from her prebudget consultations – though one stood out above all.

“I would say that the issues that I am hearing about the most, that are front of mind to me, are housing, housing, housing,” she said.

In addition to those issues, she said she is hearing concern about generational opportunity and the need for younger generations to have the same opportunities as their parents and grandparents.

The surge in inflation over the past few years has stretched affordability for Canadians. And while the annual rate of inflation has fallen from a high of 8.1 per cent in 2022, to 2.9 per cent this January – back within the Bank of Canada’s target range of between 1 per cent and 3 per cent – housing costs and food prices continue to rise quickly. Moreover, the two-decade high interest rates which the central bank has implemented to control inflation are pushing up mortgage payments for homeowners.

The Bank of Canada, which sets monetary policy independently from the federal government, has held interest rates steady since last summer. Financial market participants expect it to start lowering them around the middle of the year, so long as inflation continues trending lower.

The federal government’s political desire for lower rates was made clear when Prime Minister Justin Trudeau reacted to the latest inflation figures, describing them as good news.

“We are optimistic that the Bank of Canada will start bringing down interest rates some time this year, hopefully sooner rather than later,” he told reporters earlier this month.

In that context, the Liberals will want to ensure the 2024 budget is not viewed by the bank as overly stimulative in a way that could slow the pace of future interest rate cuts.

Pharmacare will not jeopardize Canada’s fiscal standing, Freeland says

Yet as with any budget season, Ms. Freeland is facing vocal and organized campaigns to spend considerably more.

As part of its parliamentary arrangement with the NDP, the Liberal government is set to announce a new limited pharmacare program later this week. The costing has not yet been announced.

Canada’s big city mayors were in Ottawa Monday expressing concern that the budget may not deliver on promised renewals of long-term infrastructure programs, many of which are expiring or will soon expire.

Meanwhile on the international scene, NATO secretary-general Jens Stoltenberg is publicly urging Canada to set a date by which it will fulfil a pledge to increase defence spending to 2 per cent of annual output.

Meeting that target has been estimated to cost about $20-billion more per year than what Ottawa currently spends.

When asked about those two big-ticket requests for new long-term funding on infrastructure and defence, Ms. Freeland was non-committal. Instead, on both fronts, she said the federal government is already doing a lot and pointed to existing budgeted amounts over the next few years.

“There is a lot of money in the pipeline right now, building the infrastructure that Canada needs,” she said.

Similarly on defence spending, Ms. Freeland said Canada is making a real contribution in support of Ukraine.

She also pointed out that Canada’s share of defence spending has increased under the Liberal government. That claim is supported by independent analysis by the Parliamentary Budget Officer, which said in a 2022 report that defence spending as a share of GDP rose by roughly 40 per cent – from 1 per cent of GDP in 2014 to 1.4 per cent of GDP in 2021.

“Canada today is one of the big spenders in NATO,” she said, without saying whether Canada has a plan for reaching the 2-per-cent goal.

With a report from Mark Rendell

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