The Liberals have found themselves with a financial windfall amid an economic rebound, though the extra room is largely spoken for thanks to COVID-19 measures and relief for flooded British Columbia.
Finance Minister Chrystia Freeland’s update released Tuesday, which she delivered virtually due to COVID-19 concerns, shows that the deficit for this year is on track to hit $144.5 billion, below the government’s previous forecast of a $154.7 billion deficit.
The better-than-expected result is from billions in new tax revenues that gave the government $38.5 billion in extra spending room.
But the update shows how quickly that extra room has been eaten up by $28.4 billion in new and preplanned spending since April’s federal budget.
Among the new measures are $5 billion to help B.C. rebuild after devastating flooding and $4.5 billion to respond to the Omicron variant of COVID-19, including measures at the border and benefits for workers subject to a lockdown.
There is $742.4 million set aside to help some 200,000 low-income seniors recoup drops in the value of their guaranteed income supplement payments after they received emergency aid last year. The payments are not expected to go out until next May.
Freeland told reporters ahead of the document’s public release that Tuesday’s update wasn’t the master plan for the Canadian economy going forward. That is coming in next year’s budget, she said.
It is in that document that the government could outline tens of billions of dollars in Liberal election pledges.
Robert Asselin, senior vice-president for policy at the Business Council of Canada, said there are several big expenses on the horizon that could strain federal books in the coming years without a big bump in economic growth.
That would include paying for those Liberal campaign promises, the transition to a green economy, higher health-care transfers to provinces, as well as any new wrinkle in the COVID-19 pandemic.
“I give a lot of credit for the government overall on COVID. I think they’ve provided the support that was needed both on businesses’ side and on the income-support side,” said Asselin, a former budget chief for the Trudeau Liberals.
“But they have also spent a lot of money on structural spending that is not COVID-related, and that will be hard to sustain over time without huge growth coming in.”
The economy has been on a roller-coaster ride since the onset of the pandemic but has been on an upswing over the past few months.
The government now expects the economy to grow this year by 4.6 per cent, a few ticks below the Bank of Canada’s most recent outlook, as well as grow faster than expected in the next two years.
Still, growth in real gross domestic product is expected to come back down to two per cent once the crisis passes, which Asselin said may not be enough to pay for the $78 billion in additional spending the Liberals promised on the campaign trail.
The unemployment rate in November almost reached its pre-pandemic reading of 5.7 per cent in February 2020. The Finance Department expects the country to get back to that rate in 2023 under the revised outlook.
The outlook for inflation has also been revised up from the spring budget with the government expecting the consumer price index to increase 3.3 per cent this year, and 3.1 per next year, before coming back closer to the Bank of Canada’s two-per-cent target in 2023.
Freeland had originally planned to deliver the update in person but made a cautionary change of plans after two members of her team had positive rapid antigen tests.
She told a virtual news conference the need to “drive economic growth and competitiveness” are imperative in a post-pandemic Canada.
“Climate change, housing, affordability, growth and competitiveness — these are things we are committed to working on,” Freeland said.
“But this is not a budget. And it’s not a mini-budget. Really, the intention here is a clear and transparent accounting of where the Canadian economy and Canadian finances are today.”
—Jordan Press, The Canadian Press
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