Federal Budget: Many Challenges in the Current Economic Environment | Federal Budget 2023
Liberals are expected to invest significantly in the clean energy transition.
The federal Liberals are set to unveil a budget on Tuesday that aims to outline their plans to keep Canada competitive in the context of the clean energy transition while supporting Canadians struggling to reach the ends meet.
Finance Minister Chrystia Freeland has promised to accomplish all of this in recent weeks, while pledging to maintain fiscal restraint .
Federal Finance Minister Chrystia Freeland
However, striking this balance should not be easy. A slowing Canadian economy could strain government coffers.
It will be very difficult for the federal government, said Randall Bartlett, senior director of the Canadian economy at Desjardins.
The Liberals are expected to invest significantly in Canada's clean energy transition, with the goal of keeping Canada competitive with the United States by launching its own aggressive measures.
Food prices have risen sharply in the country.< /p>
The Curbing Inflation Act, which was passed in August by the US Congress, invests nearly US$400 billion in several areas of activity to achieve this, from critical minerals to battery manufacturing, electric vehicles and clean electricity, including hydrogen.
Ottawa also pledged a lot of money for health care; the federal government recently signed ten-year funding agreements with the provinces on health transfers, and it is expected that these expenditures will be accounted for in the federal budget.
Then, as the cost of living remains an important economic issue for many Canadians, the Liberals indicated that the budget will include new measures on affordability.
“Over the coming weeks, for those Canadians who feel the effects of rising prices the most, for our most vulnerable friends and neighbours, our government will provide additional targeted relief of inflation.
— Chrystia Freeland Federal Minister of Finance
Bartlett warns, however, that the federal government must balance its major spending priorities with an uncertain economic outlook.
Many economists predict that Canada could enter a recession this year, as High interest rates weigh on the economy. Since March 2022, the Bank of Canada has aggressively raised interest rates to combat high inflation.
As global price pressure eases and interest rates dampen spending in the economy, inflation is slowing. The annual inflation rate in Canada fell from 8.1% last summer to 5.2% in February.
Even though inflation becomes less of a problem, the slowing economy results in less government revenue to fund spending.
According to a Desjardins report, the new spending measures alone would not necessarily put federal finances on an unsustainable path. However, if significant new spending is coupled with a worse-than-expected economic downturn, it could spell trouble for the federal government, the report says.
“Planning for an optimistic future and spending accordingly now could lead to very difficult circumstances in the future. »
— Randall Bartlett, Senior Director, Canadian Economy at Desjardins
The federal government also runs the risk of fueling inflation through overspending, which complicates the task of the Bank of Canada, which is to rein in inflation. Ms. Freeland has repeatedly said she has no intention of doing so, pointing out that the federal government cannot compensate all Canadians for the price hike.
< p class="e-p">Mr. Bartlett said the federal government has done a good job so far in balancing the need to help low-income Canadians while not adding to it. ;fuel to the fire.
My concern is that if they continue to add this to additional spending on other initiatives…it will not only make the Bank of Canada's job more difficult. This will only increase the deficit at a time when the economic outlook is very uncertain, he stressed.
There is also some ambiguity about the how the federal government will address tax policy in this year's budget.
Some experts have suggested that increasing tax revenue could be part of the solution to stabilizing federal finances. A shadow budget prepared for the C.D. Howe Institute, an economic think tank, recommended increasing the GST rate.
Desjardins Expert acknowledges that increasing the Goods and Services Tax (GST) may be a tough sell to Canadians, especially because the federal government has had mixed results in some of its key investment areas, such as its national housing strategy.
If we continue to see increased spending, and it requires tax increases to pay for it, the public will take a closer look at whether we're getting our money's worth, argues Randall Bartlett.
Politically, the Liberals must also come to terms with the New Democrat priorities set out in the confidence agreement between the party and the Liberals. He agreed to support the minority government in key votes through 2025, including on federal budgets, in exchange for action on shared priorities.
In the upcoming budget, NDP Leader Jagmeet Singh wants the government to extend the GST rebate by six months, which was introduced last fall and temporarily doubled the amount received.
Mr. Singh is also calling for federal funding for school meals.
As per the agreement between the two parties, the Liberals have already agreed to create a care program this year funded and administered dental benefits that would replace the dental benefit for children of low-income families, which was implemented in the fall.
L& #x27;agreement also commits the Justin Trudeau Liberals to passing national pharmacare legislation by the end of 2023, although there is no sign of progress in this regard.