OTTAWA—After a brief hint of a budget surplus in last fall’s fiscal update, Canada will once again be facing budget deficits for the foreseeable future.
The deficit will be $43 billion for the government’s fiscal year ending this month, $40.1 billion by March 2024, and is projected to improve to $14 billion in the red by March 2028. The fall fiscal update presented last November projected a fiscal surplus of $4.5 billion by March 2028.
But Canada continues to have the best debt dynamics in the G7 and the pandemic recovery in jobs and economic growth have also topped its peers, which Deputy Prime Minister and Finance Minister Chrystia Freeland touted today. She added that 830,000 more Canadians are working now as compared to when the pandemic began.
“Take a look at the deficit of other G7 countries,” Freeland said in a press conference in Ottawa on March 28 prior to the release of the budget.
The government’s “fiscal anchor” of an improving debt sustainability ratio—debt-to-GDP (gross domestic product)—continues to be met, even under an adverse scenario for the impending economic slowdown.
Canada has the lowest deficit and debt-to-GDP in the G7, Freeland said.
The debt-to-GDP ratio is 42.4 percent of GDP for March 2023 and it is projected to decline to 39.9 percent by March 2028.
The national debt is projected to grow over the next year to $1.319 trillion. It was $765 billion three years ago.
Paying for the Spending
Budget 2023’s three core priorities are investments in health and dental care, alleviating the cost of living crunch for lower-income Canadians, and providing tax credits to spur investment for Canada’s transition to a low-carbon future.
A senior government official told reporters that the government wanted to keep the budget focused on a limited number of big issues facing the country and “move the needle” on those.
The feds also confirmed a new grocery rebate for 11 million Canadians that will be delivered through the GST credit. The cost for this measure is an immediate charge of $2.475 billion.
Canada also announced a new dental care plan to benefit up to 9 million Canadians at a cost of over $13 billion over the next five years.
“I’m ready to take on anyone who says the federal government should not have done that,” Freeland said.
To support its green initiatives, the government unleashed a slew of tax incentives to generate more investment. But the government said it intends to have the private sector determine where to invest based on market signals.
The hard part is to get the right mix among pollution pricing, regulation, and incentives, said the senior government official.
“Capital investment is the key to success here,” he said, adding that $100 billion a year is needed and that Canada is currently investing between $15 billion and $20 billion a year.
Tax Hikes
The government projects revenues to increase over the budget’s five-year horizon from some efficiencies in government spending but mainly from tax increases on wealthy individuals and corporations. These initiatives are expected to raise revenues by $21.5 billion over the five years of the budget’s projection horizon.
The government is significantly reforming the alternative minimum tax (AMT), which hasn’t been done since its implementation in 1986. The AMT rate will rise from 15 percent to 20.5 percent and further limit use of tax preferences.
The senior government official told The Epoch Times that the way the government is structuring the AMT for wealthy individuals is one thing that is novel in this budget.
Corporations will get hit by the global minimum tax of 15 percent on wherever they do their business. This initiative has been in the works for some time through an OECD and G20-led framework that has the sign-off of 138 countries.
Lower Growth, Higher Rates
Given the more than 4 percentage points of rate hikes from the Bank of Canada, the feds are saying that their interest expenses will rise as a proportion of the economy, but that it is still near historic lows of about 1.5 percent.
The interest expense is projected to remain at about 9.3 percent of total government revenues in the final year of the five-year projection horizon, which is similar to the level back in 2013-14.
The average of private sector economists’ forecasts envisions Canada entering a shallow recession. The growth projections are slightly lower for 2023 at 0.3 percent and 2024 at 1.5 percent than they were at the time of last fall’s fiscal update (0.7 percent and 1.9 percent respectively).
