“Ottawa holds the line on the deficit — at least for this year”
PUBLISHED Mon, April 22, 2024, 4:52 PM EST. 3 min read.
Chart 1: Federal Deficit Projection
Finance Minister Chrystia Freeland successfully maintains the deficit at $40 billion for the 2023-24 fiscal year, slightly lower than previously forecasted. However, deficits are expected to deepen over the next five years, with no immediate plans for fiscal balance. Despite concerns about inflation, this budget’s impact on the Bank of Canada’s monetary policy remains minimal.
Chart 2: Public Debt Charges
The rising cost of debt servicing presents a significant challenge for Ottawa. Debt charges are projected to increase, reaching 1.6% of GDP in 2023-24 and doubling compared to pre-pandemic levels. Surprisingly, the government expects to spend more on servicing public debt than on essential transfers like the Canada Health Transfer by 2028-29, highlighting the fiscal strain caused by accumulated debt.
Chart 3: Real GDP Outlook
The budget declares the recession threat eliminated, with Canada’s economy performing better than expected. Despite conservative estimates from private-sector economists, recent economic growth surpasses projections, potentially leading to smaller deficits than forecasted. However, some economists argue that stronger growth has enabled increased government spending without sufficient fiscal discipline.
Chart 4: Revenue Projections
The budget anticipates revenue growth driven mainly by tax increases, aiming to raise $6.5 billion in the 2024-25 fiscal year through measures such as higher capital gains taxes and levies on multinational corporations. Despite concerns about the impact on innovation and entrepreneurship, these tax hikes are expected to contribute significantly to government revenue growth, providing essential funding for the proposed initiatives.
This report by Gigi Suhanic was first published Apr 17, 2024