(Ottawa) The slowdown in the Canadian economy and rising interest rates are weighing down the federal government’s finances more than expected and forcing Finance Minister Chrystia Freeland to revise upwards the size of deficits over the next five years. coming years.
What there is to know
- The Trudeau government is accumulating deficits.
- These deficits will be higher due in particular to the rise in interest rates.
- Debt interest costs will reach 58.7 billion in 2027-2028. This amount is higher than federal transfers to the provinces for health.
- Opposition parties sharply criticize the economic statement.
The deficit is expected to stand at $40 billion in 2023-2024, as was forecast in the last federal budget, tabled in March. But the shortfall will be higher than Minister Freeland’s latest projections in each of the following fiscal years. Between 2024-2025 and 2027-2028, deficits will be cumulatively larger by $36 billion than what the country’s big money boss had anticipated about six months ago.
In her economic update unveiled Tuesday, Minister Freeland therefore forecasts a deficit of $38.4 billion in 2024-2025 (+3.4 billion), $38.3 billion in 2025-2026 (+11.5 billion ), 27.1 billion in 2026-2027 (+11.3 billion) and 23.8 billion in 2027-2028 (+9.8 billion).
The increase in interest costs linked to the accumulated debt largely explains this increase in the deficit. Debt costs will increase from $35 billion in 2022-2023 to $58.7 billion in 2027-2028 – an amount larger than federal health transfers to the provinces – according to projections contained in the update. economic day.
Result: red ink will continue to flow abundantly in Ottawa. A return to balanced budgets is clearly not in the cards in the short or medium term. Since coming to power in 2015, the Trudeau government has never presented a balanced budget.
The accumulated debt will also increase from 1,173 billion dollars in 2022-2023 to 1,343.8 billion in 2027-2028. In 2015, this financial burden amounted to around 600 billion.
In her economic update, Minister Freeland maintains that the Trudeau government is subject to budgetary rigor and that it manages public finances in a “responsible” manner.
She points out that Canada’s net debt as a proportion of the economy remains lower today than in any other G7 country before the pandemic – an advantage that the Trudeau government says it wants to maintain at all costs.
“Our government has lifted nearly 2.3 million Canadians out of poverty. Inflation falls and wages rise. And private sector economists now predict that Canada will avoid the post-pandemic recession that many people predicted,” the minister said in her speech to the House of Commons.
Economic growth will be anemic in 2024: only 0.4%. In the last budget, we expected growth of 1.5%. However, a recovery is expected in 2025. The growth rate is expected to reach 2.2%.
The minister also announced a reduction in spending of $345.6 million in 2025-2026 and $691 million per year thereafter. These savings are in addition to those of $15.4 billion over five years already announced in the last budget. According to calculations by officials at the Department of Finance, these measures will result in savings of $4.8 billion per year in 2026-2027 and will “bring the public service back closer to its pre-pandemic growth trajectory.”
The Trudeau government also announces its intention to further reduce “previously announced investments” which are not affected or which are no longer necessary. The possibility of delaying them is even mentioned when the pace of implementation is slower than expected. The policy is estimated to result in savings of $480 million over six years starting this year.
“We still have work to do. But our economic plan is working,” she added, referring in particular to the housing crisis and the rising cost of living.
An “extremely precarious” financial framework
According to Robert Asselin, first vice-president of the Business Council of Canada, the state of public finances is in a weakened state after years of significant deficits.
“It is an extremely precarious and fragile financial framework. There is really no room for unforeseen events and economic shocks. So, if there is a recession, these projections will become more dramatic,” analyzed Mr. Asselin.
“Despite this, we have a government that found a way to spend $21 billion over six years in an economic statement. I see orange lights. And if we add financial pressures such as the creation of a national drug insurance program, as the NDP wants, we will fall into a dangerous zone for the rating agencies,” added Mr. Asselin, who was an advisor from former Finance Minister Bill Morneau.
Furthermore, the Trudeau government has decided to put a little water in its wine regarding the imposition of a tax on digital services in Canada after the multiple warnings served by the Biden administration to Washington.
Minister Freeland still plans to table a bill in the coming weeks to impose such a tax on digital giants like Google, Meta and Amazon. But the date of entry into force now remains vague. Previously, Ottawa said that this tax would come into force on 1er January 2024, even if Canada was preparing to go it alone.