The federal government announced $59.5 billion of new spending over the next five years as part of a narrowly focused budget that also promises to find savings in the public service and increase tax revenues.
Finance Minister Chrystia Freeland's budget, tabled in the House of Commons Tuesday (March 28), has three main focuses: the clean economic transition, health care and cost-of-living relief.
To finance these priorities, the Liberals are promising to find $9.8 billion of savings within the public service. They also are introducing a range of tax measures, including ones aimed at wealthier individuals and corporations, that together would increase revenues by $11.7 billion.
At a time of high inflation and a slowing economy, Freeland had promised fiscal restraint and reiterated that commitment Tuesday.
"Our country has a proud tradition of fiscal responsibility. That is a tradition we are determined to uphold,'' Freeland said in a speech in the House of Commons while presenting the budget.
The federal deficit is projected to decrease to $14 billion by 2027-28 from $43 billion, while the debt-to-GDP ratio is expected to rise slightly in the coming year before falling to 39.9% in 2027-28, down from 42.4%.
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Desjardins' chief economist Jimmy Jean said the budget shows the federal government is trying to "strike a balance'' to not fuel the flames of inflation. The host of affordability measures, which includes an additional boost to the GST rebate, are considered to be relatively modest.
"But at the same time, you're not seeing the deficit close by the end of the projection (period),'' Jean said.
Canada's debt-to-GDP ratio is expected to rise in 2023-24 to 43.5%, then decline to 39.9% in 2027-28. The federal government's fiscal decisions are supposed to be guided by its fiscal anchor, which is a declining debt-to-GDP ratio in the medium term.
Rebekah Young, director of fiscal and provincial economics at Scotiabank, said she didn't find the budget to be fiscally restrained. Given the uncertainty in the economic outlook, Young said the federal government could have limited spending to "the bare bones.''
To alleviate the pressure of rising grocery prices, the federal government has extended the GST rebate boost offered in the fall. The rebate, which will go to lower income Canadians, will deliver up to $234 to a single person and up to $467 to a couple with two children.
In response, Retail Council of Canada – a non-profit trade association representing retailers – said the rebate would be “helpful during these challenging times,” but pointed out that most groceries aren’t subject to sales tax.
The association also said the federal government “missed the mark” by not including its two key proposals, specifically slashing interchange rates for credit card acceptance and the elimination or suspension of customs duties.
The Canadian Produce Marketing Association (CPMA) also released a statement in response to the 2023 budget.
CPMA said it was encouraged to see its recommendations included, namely the creation of a national supply chain strategy and supply chain office; measures to improve government oversight of Canadian ports and marine shipping; investments in rural infrastructure; and funding to establish the Canada Water Agency as a standalone entity.
However, the association said it was disappointed that the implementation of a financial protection mechanism for produce sellers was not included.
“The impacts of the pandemic, supply chain disruptions and geopolitical and economic volatility have put the produce sector in a more vulnerable position without a financial protection mechanism in place,” CPMA president Ron Lemaire said in a statement. “We are hopeful that all parties will support Bill C-280, the Financial Protection for Fresh Fruit and Vegetable Farmers Act, when it comes before the House of Commons in the coming weeks.”
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As the Canadian economy slows, the fiscal and economic projections in the budget have been downgraded from the fall fiscal update to account for a shallow recession this year.
While the Liberals' budget presents a more restrained approach to finances, the projected deficit is at risk of growing if the promised savings aren't found and the economy slows more than expected. A sharper downturn would mean less tax revenues to finance the government's priorities.
Jean said the likelihood of a deeper recession has increased amid high interest rates.
"You've got to question what (the Liberals) are going do if there's a recession that's deeper than expected,'' Jean said.
The Bank of Canada has aggressively raised its key interest rate over the last year, bringing it to 4.5 per cent, the highest it's been since 2007.
High interest rates are already slowing the economy, which posted zero growth in the fourth quarter.
The economic projections in the budget, which are based on a survey of private sector economists, suggest real GDP will grow by 0.3% this year. The government's downside scenario, which offers a more pessimistic outlook, estimates a contraction of 0.2%.
As the economy slows, the budget projects the unemployment rate will peak at 6.3% by the end of the year. The unemployment rate in February, the most recent month with available data, was five per cent.
The economic projection also finds inflation is expected to fall below 3% in the third quarter before returning to the Bank of Canada's 2% in 2024.
Jean said the budget also hinges on the federal government following through with public service cuts, an exercise that's considered challenging. On the tax front, Jean said there's questions regarding how much the federal government will successfully raise from high-income earners.
"Those are very sophisticated individuals that can find ways to reduce or optimize their taxes,'' Jean said.
With files from Canadian Grocer Staff