In Ottawa, Finance Minister Chrystia Freeland must perform tightrope walking. His government must both deal with the desire to respond on issues such as housing and defense and calm Canadians’ concerns about deficits. Points of view from three experts, on the eve of the tabling of the federal budget, which will be revealed on Tuesday.
For several days, Prime Minister Justin Trudeau and Minister Freeland have been touring across the country to distill some of the measures that will be in next week’s budget.
In total, no less than 18.9 billion have been announced so far, notably for measures affecting defense (7.9 billion), housing (6.9 billion) and even artificial intelligence (2.4 billion).
“These are programs that are interesting, perhaps important. But the challenge is: do we have the income to maintain all these expenses? » asks Pedro Antunes, chief economist of the Conference Board of Canada.
Unless the government makes cuts in certain places or finds a way to increase its revenues, “it is possible that the deficits will be larger than what was expected,” indicates Luc Godbout, holder of the Research Chair in Taxation. and in public finance at the University of Sherbrooke.
This is also the finding that emerges from a report from the Parliamentary Budget Officer (DPB) published last March. According to estimates from the federal public finance watchdog, the deficit should stand at $46.8 billion for the 2023-2024 fiscal year — rather than $40 billion as Ottawa announced in its economic statement of autumn.
And for the year 2024-2025, the deficit should be around $40.8 billion, according to the PBO – instead of the level of $38.4 billion anticipated by the government.
For economist Emna Braham, general director of the Institut du Québec (IDQ), the federal government faces a double challenge: that of “demonstrating budgetary discipline at the same time as investing to increase its productivity and growth. “.
The goal of balance
According to a recent survey by the Angus Reid Institute, released this week, the accumulation of deficits would be a concern for a majority of Canadians. Nearly three in five Canadians (59%) believe that federal spending has become too high and that cuts were in order, according to the survey.
Since coming to power almost ten years ago, the Liberals have never presented a plan to return to balanced budgets. Before them, the Conservatives had also suffered deficits following the economic crisis of 2008.
“I still remain convinced that a deficit [annuel] less than 5% of gross domestic product is not huge. So we don’t have to worry,” says tax specialist Luc Godbout.
“Except that when there are no cyclical reasons for the deficit – like the pandemic – we should still aim for balance. When we make new announcements and want increased interventionism, that should go hand in hand with adequate funding. »
Mr. Antunes also believes that “we should still aim for balance, if not in the short term, at least in the medium term”. Because “deficits add to the debt, which leads to interest payments, which themselves take away from our room for maneuver,” he notes.
“Will the government be able to put everything together to maintain its objective of continuing to reduce the debt as a ratio of gross domestic product? » says the economist.
In 2022-2023, the federal debt stood at 42% of the country’s gross domestic product, and it is expected to decline to 39% in 2028-2029. Over the same period, public debt costs should increase from 8% to 11% of government revenue.
Pressures to come
Even if Canada remains in a budgetary situation “relatively advantageous compared to other developed countries”, its favorable financial position “has deteriorated following the pandemic”, notes Mme Braham. However, new financial pressures are looming.
“In the last budget, the federal government did not fully take into account several additional future expenses, in particular the health costs assumed by the provinces, which will increase in the medium term,” she argues.
Among the other additional expenses to come: the real cost of the new child care and dental care programs, but also the implementation of prescription drug insurance.
These uncertainties linked to shared programs will have repercussions not only on federal finances, but potentially also on those of the provinces, particularly Quebec, notes the general director of the IDQ.
“As the federal government has not made a formal long-term funding commitment for these programs, the risk is that Quebec will have to assume part of the related costs in the event that the federal government decides to reduce its contribution or not to make it evolve to fully cover the real costs,” she argues.