By Promit Mukherjee
OTTAWA (Reuters) – Canada’s fiscal targets over the next few years will be tougher to achieve as a promised Christmas handout last month by Prime Minister Justin Trudeau amplifies the impact of falling growth from immigration curbs.
Combined with other pressures such as a commitment to increase defense spending, the United States threatening export tariffs, and additional spending temptations in an election year, Canada’s debt and deficit projections are precarious, economists and academics said.
Fiscal deficit and government debt are not a top priority for Canadian voters, who are more worried about affording housing or groceries. Cost of living and a housing shortage have shrunk Trudeau’s approval ratings ahead of an election that must be held within a year.
However, in the long run, the fiscal metrics impact the government’s ability to provide for social programs and force higher taxes on the population.
On Nov. 21, Trudeau promised to send a C$250 ($178.81) cheque to nine out of every 10 working Canadians. He also announced a sales tax freeze on essential goods from Dec. 14 to Feb. 15.
“It’s good politics and bad policy,” Mahmood Nanji, Lawrence Centre Policy Fellow at Ivey Business School, said of the latest measures.
There is no clarity on whether the government will raise new debt or shift spending from somewhere else to fund the initiatives, Mahmood said. The tax breaks passed parliament, while the cheques have not yet been presented.
Public spending in Canada ballooned during the COVID-19 pandemic, with the gap between the government’s revenues and expenditures in 2020 widening to its highest level since World War Two. Trudeau has since publicly committed to fiscal responsibility.
Finance Minister Chrystia Freeland, after postponing the government’s debt reduction goals twice in 2023, promised a 2023-24 deficit at or below C$40.1 billion, to reduce the debt-to-GDP ratio, and to keep the deficit-to-GDP ratio below 1% by 2026-27 and beyond.
The government has not yet released its 2023/24 fiscal year’s final spending and revenue numbers. Randall Bartlett, senior director of Canadian economics at Desjardins, believes that the annual fiscal deficit target has been missed.
“I suspect the federal government has made the decision to set its fiscal anchors aside,” Bartlett said.
Asked about the targets on Tuesday, Freeland said a mid-term budget called the Fall Economic Statement will have details of spending and fiscal anchors.
The statement is later than usual due to gridlock in parliamentary proceedings, she said, but added that Canada’s fiscal position was strong and it has the lowest debt and deficit amongst the G7 countries.