Canada’s budget plan pledges to spend modestly after years of Covid stimulus – Update


By Paul Viera

OTTAWA – Canada said Thursday that the days of big government spending, such as those seen during the pandemic, are over and that it intends to gradually reduce the size of its budget deficit while introducing targeted spending to remedy to economic vulnerabilities.

The message was contained in the Liberal government’s 2022 budget plan, which calls for new spending over the next five years of around C$29 billion, or the equivalent of $23 billion. The bulk of new spending is focused on building new homes to cope with tight affordability, reducing carbon emissions and expanding health care coverage.

The budget plan, presented by Finance Minister Chrystia Freeland to the Legislative Assembly, projects spending and revenue for the next five fiscal years, ending March 31, 2027. Canada has rolled out one of the most more aggressive during the pandemic to protect the economy, totaling more than C$350 billion or the equivalent of about 13% of gross domestic product. The size of the budget deficit peaked at C$327.7 billion, or 15% of GDP, in fiscal year 2020-21, before narrowing to C$113.8 billion in the coming fiscal year to end on March 31.

Canada’s budget plan calls for a further reduction in the budget deficit to around C$53 billion in fiscal year 2022-23, or 2% of GDP. The economy has seen a robust recovery from the depths of the pandemic, with employment above pre-pandemic levels. Canada also benefited from the strong rise in commodity prices, which fueled a surge in corporate income tax revenues.

“The money that saved Canadians and the Canadian economy – deployed primarily and rightly by the federal government – ​​has drained our cash flow,” Ms. Freeland said in a letter included in the budget documents. “Our Covid response has come at a significant cost, and our ability to spend is not infinite. We will review and reduce government spending, as it is the responsible thing to do.”

Some economists feared another dollop of aggressive spending from Ottawa would add to elevated inflationary pressures and make it harder for the Bank of Canada to tackle inflation from a three-decade high.

Total spending in the just-ended fiscal year was estimated at C$500 billion, and spending for the current 12-month period is expected to fall to C$452.3 billion. Annual spending is expected to increase gradually over the planning horizon and return to the C$500 billion level in 2027. The fiscal balance is not expected to reach a surplus position over the planning horizon.

The outlook for the budget plan is based on growth of 3.9% this year and 3.1% in 2023. Inflation is expected to average 3.9% this year and then slow to 2.4% in 2023, partly due to the Bank’s planned interest rate hikes. from Canada.

The Liberal government is proposing new tax hikes. He intends to impose a one-time tax on income earned last year by financial institutions and a permanent 1.5 point tax rate increase on profits over C$100 million. Together, the levies on Canadian financial institutions are expected to bring in C$6.1 billion in revenue over the budget planning period.

The government added that it intends to unveil changes to the existing tax code later this year to ensure that high-income earners, such as those earning C$400,000 or more a year, “pay their fair share of tax”.

The most high-profile spending in the budget plan is on measures to build new housing, in a bid to bring down national property prices from an all-time high. Royal Bank of Canada’s economics team recently described the state of housing affordability as “grim”.

The Liberal administration intends to allocate C$4 billion to build 100,000 net new homes over the next five years. The government also said that future funding for municipalities related to infrastructure and public transport would depend on local governments increasing the supply of housing.

The government will also spend C$5.3 billion to introduce dental coverage for low-income families. The Liberals agreed to this as part of a formal agreement with its leftist rival, the New Democratic Party, to support the minority government in the Legislative Assembly for the next three years.

The Canadian military is expected to receive an additional C$6 billion over the next half-decade to meet the additional demands of the war in Ukraine. This falls short of what some defense analysts were calling for to help equip the Canadian armed forces, which they say lack the capacity to meet their obligations to protect the continent and assist allies on the continent. NATO. The budget plan says officials intend to review current defense policy to ensure the armed forces can cope with a changing geopolitical environment.

Write to Paul Vieira at [email protected]


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