Achi news desk-
The Liberal government faces a slowing economy and an uphill battle in the polls as it prepares to deliver its 2024 federal budget on Tuesday.
Global News spoke with Canada’s former parliamentary budget official ahead of April 16, who said he expects a tight spending plan with little room for surprises or much-needed relief on cost-of-living issues for Canadians.
Aiming for the third budget under the government’s current mandate, Justin Trudeau’s Liberals have been on a cross-country tour plugging a series of measures that will be included in next year’s spending plans.
Since the end of March, the Liberals have announced just over $37 billion in new spending and loans planned for the federal budget, according to a Global News analysis. Some of the Liberals’ publications have spread spending over several years, while other items come with little or no price tag.
There is a significant amount of spending associated with the Canadian housing market, in the form of either incentives to build more supply or policy changes to support renters and help potential buyers get their first rung on the property ladder. These include promises to help renters build their credit scores, changes to savings plans and amortization rules aimed at promoting affordability and billions in incentives to get more shovels on the ground on new buildings.
Outside the housing market, Ottawa plans to introduce a national lunch program and pledged billions for expanded childcare access, a boost to defense spending and the country’s artificial intelligence industry, and a new youth mental health fund.
All the while, Finance Minister Chrystia Freeland has promised that the Liberals will not increase the federal deficit beyond its current levels of $40.1 billion.
Liberals have little fiscal room to ‘move’: before PBO
Kevin Page, Canada’s first PBO and president of the Institute for Fiscal and Democracy Studies at the University of Ottawa, tells Global News that the Liberals face significant headwinds in trying to keep the deficit stable while also meeting the needs of Canadians.
Canada’s economy may have avoided tipping into recession in 2023, but growth remains weak under the pressure of higher interest rates from the Bank of Canada. That means the federal government sees lower revenue flowing into its coffers at the same time its debt becomes more expensive.
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“Their challenge is, they don’t have much financial room to move,” explains Page.
An RBC economics report released last week also warns of consequences for Canadians if governments are tempted to stray from their fiscal anchors, whether that’s maintaining the overall size of the deficit or maintaining a debt-to- Constant GDP.
Governments, federal or provincial, sticking to their fiscal anchors build “confidence in voters and financial markets,” wrote author Rachel Battaglia, an economist with RBC.
Canada’s sovereign triple-A credit rating going into the 2024 federal budget is “strong,” Battaglia said, but the country is at risk of a downgrade should Ottawa stray from its fiscal moorings.
A blow to this key credit rating would trickle down to major banks, and through that, the rates paid by their customers on products such as mortgages, according to Battaglia.
“While deeper deficits and associated higher sovereign borrowing costs may feel like a distant problem to many Canadians, the impact has the potential to trickle down to most households and businesses,” Battaglia wrote.
“Therefore, all Canadians have a stake in seeing the federal government reach its fiscal targets.”
Another tactic to increase revenue when economic growth slows is by raising or introducing new taxes. While Freeland has promised that no new taxes will be raised on the middle class in the 2024 budget, she has been mum on whether taxes on wealthier individuals or corporations could be in the cards.
Little room for surprises in the budget
One tailwind benefiting the federal government this budget season is that Canada’s first quarter of real GDP growth so far is coming in stronger than predicted in Ottawa’s fall economic statement last November.
That gives the Liberals a little more room to spend than they otherwise would have had amid pressure to maintain the deficit, Page said. But he expects this bandwidth to be mostly consumed with the measures already announced, and he doesn’t expect any new big-ticket items to be unveiled on April 16.
An Ipsos poll conducted exclusively for Global News last month shows that the biggest demand from voters heading into the federal budget is financial relief from rising living costs.
The priorities most often cited by Canadians surveyed by Ipsos regarding the upcoming 2024 federal budget.
Global News / Ipsos
Some 44 percent of those polled in March said they wanted help with rising daily costs, followed by 38 percent who prioritized health care investments and 33 percent who asked for a reduction in personal taxes.
“Pocketbook issues dominate the list of things Canadians want to see addressed in the budget,” Sean Simpson, senior vice president at Ipsos Global Affairs, told Global News earlier this month.
But Page doesn’t see much room for those kinds of relief efforts in the 2024 budget if the Liberals want to maintain the deficit.
The best the Liberals can do is make it look to Canada that they are “trying their best” to act in a fiscally responsible way while providing support to the most vulnerable, he said.
“I don’t think we’re going to see a lot of new things that can make a big difference to families in 2024 in terms of affordability,” says Page.
“We may see some small measures, but they will be small and targeted.”
The efforts already announced to build more homes are “incremental steps” in solving the housing crisis, but Page says the country is “millions of units short” of what is needed to restore affordability . Even efforts to increase housing supply will take years before homes are ready to move in, he said.
“It’s not something we’re going to solve in the 2024 budget,” Page adds.
Liberals could have better prospects in 2025
Latest Ipsos political poll from March 28 after the Conservatives raised 18 points over the current Liberals, who themselves are only three points ahead of the NDP. Simpson said the Liberals will need to “stop the bleeding” to avoid dropping to third place behind the NDP.
There is room for a federal election by October 2025 at the latest, but it could be called sooner if the Liberals fail a vote of confidence or bring down the government themselves.
Page expects a “pretty thin budget” this year, with some big items reserved for next year’s hopeful pre-election budget.
But if the Liberals are allowed to set another budget before the next federal election is called, Page thinks the party in power could find better fortunes in 2025.
By then, many economists, as well as the Bank of Canada, predict that the economy will begin to recover amid the anticipated cuts to the central bank’s benchmark interest rate.
This time next year, the Liberals may find that increased revenue will boost their electoral prospects and give them more ammunition to deliver a 2025 budget that would have a better chance of restoring voter confidence in government, he said. Page.
“The government knows it will be a tough year economically for Canadians and probably a tough year politically,” he said. “But I think they’re hoping this will rebalance when we get to 2025.”
– with files from Global News’ Sophall Duch
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