The federal budget tabled Thursday by Finance Minister Chrystia Freeland is less spendthrift than expected. With revenues substantially up thanks to the economic recovery, inflation and rising commodity prices, Mme Freeland was spoiled for choice. That she chose not to spend all this windfall immediately was in a way a victory for all those who had multiplied the warnings in the days leading up to the tabling of the budget.
The current Toronto riding of Mme Freeland, University–Rosedale, and its predecessor, Toronto Centre, probably have the highest concentration of CEOs per square kilometer in Canada. The tall towers that house the headquarters of Canada’s major banks soar above these two constituencies.
The occupants of these offices have never ceased to express their disapproval of Mr.me Freeland lately. They accuse him of overspending during the pandemic and lacking strategies to address the country’s weak long-term economic growth prospects.
Like eating sugar pops
Royal Bank President and CEO Dave McKay did not go easy on this when he told the Globe and Mail “To me, taxing and spending is like eating sugar pops for breakfast. Feel real good for an hour, but feel so fucked up [crappy] at noon and at the end of the day… This does not give you lasting prosperity. »
Never had we heard the CEO of the first financial institution in the country so curtly criticize a federal finance minister in the public arena.
It must be said that the financial sector had not liked the election promise of Justin Trudeau’s Liberals to impose a special tax on banks and insurers, whose profits have been doing well during the pandemic thanks, among other things, to aid federal funds distributed to individuals and businesses.
In the minds of the heads of the banks, this promise stems from a left-wing populism that turns the country’s major financial institutions into Turk’s heads for electoral purposes. It also testifies to the lack of esteem that Mr. Trudeau has for business people and the creators of wealth in the country.
The warnings of business people
The Liberal election platform planned to raise $11 billion over the next five years through a temporary dividend, as well as a 3% surtax on the profits of big banks and insurance companies. However, Thursday’s budget revises this amount downwards, to $6 billion over five years, and reduces the increase in the tax rate for these institutions to 1.5% above the $100 million threshold. It is therefore 5 billion less that Ottawa plans to draw from the profits of the banks over the next five years. The criticisms of Mr. McKay and his peers will not have been in vain.
Mme Freeland also seems to have taken the warnings from business people about the deficit and the debt to heart. Yes, the budget provides $56 billion in new spending over the next few years. But this is less than the 100 billion in additional revenues expected during the same period.
Although she did not show as much budgetary rigor as the business community would have liked, the Minister of Finance nevertheless managed to short-circuit the impression that the Liberals do not care about the debt federal. This should exceed 1,200 billion this year, an increase of more than 500 billion since the start of the pandemic.
“The federal government has left part of the windfall it was expecting on the revenue side in the bank,” conclude Desjardins Group economists Jimmy Jean and Randall Bartlett in their analysis of the budget. “Indeed, relative to the size of expenditures announced before Budget 2022 related to 2021 election platforms, supply and confidence agreements [avec le Nouveau Parti démocratique], meeting NATO defense spending targets, national drug and dental care programs, the spending closet has not been as full as expected. »
The trend or a break?
The agreement between the NDP and the Liberals provides for the establishment of a universal drug insurance program starting in 2023, the cost of which could exceed $10 billion per year. Thursday’s budget also announced that Ottawa will conduct a “prompt defense policy review to ensure Canada is prepared for a now more dangerous world.”
The $6 billion over five years in new military spending included in the budget is just a down payment on Canada’s commitment to approach the target of 2% of domestic product produced in military spending required by the NATO. It is therefore only in 2023 that we will know if the new budgetary “strictness” of Mme Freeland dictated the trend, or just a break.