Since its re-election, the Trudeau government has led Canada’s public finances with the NDP sitting in the passenger seat. But with the arrival of Pierre Poilievre at the head of the Conservative Party, Finance Minister Chrystia Freeland is pulling the steering wheel a little more to the right.
Posted at 5:00 a.m.
It shows in the economic statement she presented on Thursday. And that’s good.
The Liberals, who had never seemed concerned about endless deficits, have suddenly set a target of returning to balanced budgets for the first time since they have led the country.
We will have to be patient, because it is only in 2027-2028 that Canada will come out of the red (at the same time as Quebec, for that matter). Alright, that’s a long way. Ottawa preferred to keep a good margin of maneuver instead of reducing the deficits as quickly as possible. But at least there’s a real target.
This fiscal anchor is particularly reassuring, as the recession looms on the horizon and the tide could turn very quickly.
For the time being, the government still has the wind at its back thanks to inflation, which is increasing its tax revenues, in particular due to the performance of the natural resources sector. This is why its deficit for the current year should be lower than forecast in the last budget, in April.
But soon, Ottawa will have the headwind. Inflation will drive up his spending, with higher wages and rising interest costs. At the same time, its revenues will suffer from the economic slowdown.
In the last budget, Ottawa predicted GDP growth of 3.1% in 2023. Today, it is only 0.7%. However, this figure is based on the forecasts of private sector economists made a month ago. And since then, some have reduced their expectations to zero.
In short, the next year will not be rosy.
As we know, the Bank of Canada has raised interest rates by 350 basis points to calm demand and curb inflation, which has reached a 40-year high. In this difficult context, Chrystia Freeland was able to resist the temptation to send general gifts to households, as several provinces, including Quebec, have done.
This money would only add fuel to the fire that the Bank of Canada is trying to put out. A very bad idea. In the United Kingdom, former Prime Minister Liz Truss wanted to go against her central bank, by decreeing tax cuts. She only succeeded in throwing the financial markets out of whack… and leading to her own ejection after only 45 days of reign. A real disaster.
Fortunately, we are far from that in Canada.
True, our level of indebtedness is the envy of other G7 countries. True, our debt-to-GDP ratio is expected to decline from a pandemic peak of 45% down to 37% in 2027-2028. Nonetheless, this will still remain well above the 31% level before COVID-19 hit us.
The Minister of Finance was therefore well advised to offer only targeted assistance to workers at the bottom of the ladder and to students. This is the way to go since the less well-off are bearing the rise in the cost of living much harder, those who cannot cut the fat.
Chrystia Freeland has also pledged to limit fees charged by credit card issuers to small merchants. Hallelujah! This unhealthy practice has been denounced for so long.
This measure, which has the merit of not costing the state coffers a penny, will take pressure off consumer prices, which will help fight inflation.
What more ? Let’s apply it ASAP!