The federal Liberals have delivered a budget that looks to take advantage of a boom in economic growth that has padded federal books, and turn that extra spending space toward removing hurdles to long-term gains.
However, experts cautioned that while the budget recognizes the country needs to do more to boost future growth, it fails to provide a clear road map of how to achieve prosperity in the coming years.
The economic boom since late last year has heaped $85.5 billion in new spending room, of which the government plans $56.6 billion in gross spending by 2027 targeted at speeding the flow of goods through the country’s supply chains, boosting housing supply and jolting businesses out of an anemic period of investment.
The new spending has increased the fiscal year’s deficit to $52.8 billion.
Finance Minister Chrystia Freeland framed the spending as a hedge against near-term economic uncertainty created by Russia’s unprovoked invasion of Ukraine and the sixth wave of the COVID-19 pandemic.
But she said the spending is aimed at the long-term as well to address structural issues within the national economy that could hold back growth.
“Canadians understand that post-COVID, our country needs a growth strategy,” Freeland said in an afternoon news conference ahead of the budget’s release.
“We need to pay down our COVID debts and in a very uncertain 21st century Canada really needs an economic plan that is going to allow us to increase our productivity to increase our economic growth.”
It’s why the government reprofiled $15 billion in planned spending for a new fund designed to lower business investment risk for research and new technologies, $3.8 billion over eight years for a critical minerals strategy, and $450 million over five years to unclog supply chains.
Dennis Darby, president of Canadian Manufacturers and Exporters, said welcomed those measures, but said the budget failed to address labour shortages: “This is a miss.”
The document also looks to spend money from budgets past by forcing provinces to allocate nearly $7.3 billion in outstanding infrastructure dollars by next March or risk losing the money. Timelines to spend the money have also been pushed back from 2027 to 2033.
The government’s budget admits to hurdles to Canada’s long-term growth prospects, though falls short of a detailed economic strategy, said Robert Asselin, senior vice-president of policy with the Business Council of Canada.
“They are admitting at least that stuff they have been doing is not working. That’s a great start,” he said. “But I think to their own admission, they’re still not sure on where to go next.”
Rebekah Young, Scotiabank’s director of fiscal and provincial economics, said some measures should drive higher growth potential over the medium-term, but noted the lack of details marked a “missed opportunity to set out a national vision for future prosperity over the long run.”
The budget forecasts 3.9 per cent economic growth this year but expects that to slow over the ensuing four years to average 2.9 per cent annual growth in real gross domestic product.
Inflation too is expected to fall from 3.9 per cent this year — an upward revision to December’s fiscal update — back toward the Bank of Canada’s target of two per cent next year. The hot pace of price increases was something the government kept in mind while crafting the budget, Freeland said.
Unemployment is expected to stay at a low of 5.5 per cent over the forecast horizon.
Economist Armine Yalnizyan, an Atkinson Fellow on the Future of Workers, said the budget was a missed opportunity to invest in health-care workers, for example, to keep workers from leaving the care economy that accounts for one-fifth of GDP.
“You can build the middle class of the next century,” she said. “But only if you decide you’re going to make every job a good job, and make sure there are people there to do that work.”
Total spending this fiscal year declines to $452.3 billion, including debt servicing costs, from the $497.9 billion in the preceding 12-month period as emergency pandemic aid measures end.
The Canadian Federation of Independent Business was disappointed supports for small firms were ending, and the Canadian Chamber of Commerce noted the absence of debt relief for businesses could undermine growth plans.
The budget forecasts the debt as a percentage of the economy will hit 45.1 per cent this year and then decline, even in a worst-case scenario envisioned in the document.
Randall Bartlett, senior director of Canadian economics at Desjardins, said the government has put some of its financial windfall into the bank for a rainy day given the uncertain environment, and held back on moving ahead with a handful of election promises in this budget.
“There will be some people who aren’t happy ultimately with the budget, I think, as a result, and maybe not understanding why they put that windfall aside, but I think it’s the prudent thing to do,” he said.
Missing from the spending outlook are measures like pharmacare promised as part of the Liberals’ deal with the NDP. Nor did the document pump out the full suite of Liberal campaign pledges.
Freeland said this was the first of four budgets the Liberals expect to deliver before the next federal election, which could happen in 2025 if the NDP prop up the government until then.
“Yes, we will do more things over the next three budgets,” she said. “We will, however, do those additional things, fulfil those further promises within an absolutely responsible fiscal framework.”
The government rolled out a tax on excess profits at banks and insurance companies the Finance Department expects to reel in $6.1 billion over five years to add revenues into the fiscal framework. The budget also warned the country’s top earners that the government plans to change their minimum tax rate, with details later this year.
The Liberals are also promising a spending review to find $6 billion in savings over five years. A progress report is promised for next year’s budget.
—Jordan Press, The Canadian Press
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