(Ottawa) The Trudeau government will be unable to meet its deficit targets from 2026-2027, based on current economic projections, unless it reduces spending by at least $12 billion per year.
What there is to know
- The Trudeau government wants to limit deficits to 1% of GDP starting in 2026.
- This financial anchor will be difficult to respect if Ottawa does not reduce its spending.
- A reduction in spending of 12 billion per year will be necessary, according to an analysis by the Business Council of Canada.
At least this is the conclusion drawn by the Business Council of Canada (CCA) in a study of the measures proposed by Finance Minister Chrystia Freeland, in her latest economic update tabled in November, in order to provide Ottawa with a more great budgetary discipline.
In this economic update, Mme Freeland announced that the Trudeau government would establish a new financial anchor: keeping deficits below 1% of gross domestic product (GDP) in 2026-2027 and subsequent years.
According to this formula, the deficit should not exceed 32 billion this financial year, because the Ministry of Finance estimates that GDP will reach 3202 billion in 2026.
According to the CCA, the government will miss this target. The president and CEO of this organization which represents the country’s largest employers, Goldy Hyder, expressed his skepticism about new budgetary rigor in Ottawa in a letter addressed to Prime Minister Justin Trudeau.
“The deficit today is 1.4% of GDP. Assuming no new taxes and low economic growth, as forecast by the Bank of Canada, a 0.4% reduction in the deficit implies a reduction in spending of at least $12 billion dollars per year or even 50 billion dollars over five years. Given that your government has increased spending by more than 5% on average per year since 2016, the proposed financial anchor is simply not credible,” asserts Mr. Hyder in his three-page letter.
The Press obtained a copy of this letter which was sent in advance of the three-day federal cabinet retreat in Montreal. This retreat, which begins this Sunday evening, aims to prepare for the resumption of parliamentary work on Monday January 29.
During this cabinet retreat, Justin Trudeau and his ministers will address current issues such as the housing crisis, the rising cost of living and immigration policies, as well as the impact that the November presidential election in the United States on Canadian-American relations.
Since coming to power in 2015, the Trudeau government has never presented a balanced budget. In her economic update last November, Minister Chrystia Freeland confirmed that the slowdown in the Canadian economy and rising interest rates were weighing down the government’s finances more than expected and would increase the size of deficits over the next few years. next five years.
Significant financial pressures
In the CCA analysis, written by Robert Asselin, former budget director for former Finance Minister Bill Morneau who is now first vice-president of the CCA, it is also emphasized that the Trudeau government is facing significant financial pressures less than two years before the next federal election.
Mr. Asselin points out in particular that the New Democratic Party, which supports Justin Trudeau’s minority government in the Commons during confidence votes, is demanding the creation of a national drug insurance program, a measure that could cost up to 18 billion dollars per year once implemented.
“Second, Canada is facing significant demographic changes that will impact the costs of Old Age Security and health care. Added to this list are real pressures on defense spending, energy transition and industrial policy, research and development as well as indigenous reconciliation. It is unlikely that the government will be able to ignore any of these major political questions,” notes Mr. Asselin in his analysis.
In his missive to the Prime Minister, Mr. Hyder also deplores the Liberal government’s slowness in implementing its promise to submit a plan by the end of 2023 aimed at accelerating the evaluation of major energy projects. Worse still, the government has not even developed the beginning of a draft of this plan, which is eagerly awaited by investors, communities where promising projects are located and interested groups.
Already, Canada must deal with an unfortunate reputation abroad according to which the approval of natural resource exploitation projects can take years, even a decade, to succeed, according to the admission of certain influential ministers. of the Trudeau government.
“Any delay in correcting the federal project approval process creates uncertainty, discourages investment and moves Canada away from its goal of ensuring a transition to a low-carbon economy. As a result, Canada and Canadians are losing ground,” explains Mr. Goldy.
He also notes that the Trudeau government has not yet implemented the tax credits mentioned by Ottawa in order to stimulate investments for the energy transition and compete with the measures of theInflation Reduction Act of the Joe Biden administration in the United States.