In her first budget a year ago, Chrystia Freeland told Canadians there was a risk of doing too little to ensure post-pandemic recovery.
As the finance minister prepares to present her second fiscal plan later this week, she is expected to keep spending.
Between the Liberals’ own campaign promises — on housing, climate change and seniors — and pledges to pursue universal dental and pharmaceutical care through the party’s supply and confidence agreement with the New Democrats, the budget is expected to include billions of dollars in new spending.
It’s all affordable, Freeland told the House of Commons last week.
“The reality is that Canada is resilient and our economy is recovering well from the COVID-19 recession,” she said. “Our GDP grew by 6.5% in the fourth quarter, making us the second strongest economy in the G7. We have recovered 112% of the jobs lost to the pandemic, compared to only 90% in the United States.
There are also other favorable indicators.
Oil and gas revenues will be significantly higher this year as the price of oil remains at or above $100 a barrel. Corporate and personal income taxes are up 15% from a year ago, according to Rebekah Young, director of tax and provincial economics at Scotiabank.
The downside is inflation, which is hovering around 6%.
Young said the danger Freeland faces with this year’s budget is doing too much rather than too little.
“Any kind of fiscal stimulus that goes directly to Canadian households tends to be spent quickly, especially by low-income households,” she said. “It creates more demand for goods and drives up prices.”
So what should Canadians expect?
For starters, the budget is expected to include a down payment on the housing promises the Liberals made in their 2021 campaign platform.
This would include an initial investment in a housing accelerator fund to kick-start construction of new middle-class housing, an increase in the tax credit for first-time home buyers and new funds to convert office towers. empty condominiums.
In an interview broadcast last weekend on CBC The HouseNDP Leader Jagmeet Singh said negotiations leading to the supply and confidence agreement focused on other measures to ease the housing crisis.
“In the agreement, we included a buyer’s bill of rights, which would include a ban on blind auctions, which would include the movement of foreign ownership and some of the other pressures that drive up costs,” he said. -he declares.
“So there are a number of elements of the agreement that specifically address this crisis that will help people find a home that is within their budget. It should be within the budget because there have been things that we we negotiated.”
WATCH: How worried are Canadians about the rising cost of living?
Government insiders say the budget will also provide a first installment to meet the NDP’s demand for universal drug and dental coverage for children.
There will be additional investments to reduce carbon emissions and help create jobs in green technologies, and more money to address the lingering health problems the pandemic has revealed in long-term care facilities.
Liberals who spoke in the background (because they weren’t authorized to publicly discuss the budget) said this week’s budget marks a return to a more normal approach to budget planning.
The deal with the NDP, which is supposed to prevent another election until 2025, allows the government to move incrementally, to address priorities over multiple budget cycles rather than just one.
A budget pulled in three different directions
But some groups believe it is a mistake to use windfalls from higher tax and energy revenues to expand programs while the government continues to run large deficits.
Goldy Hyder, head of the Business Council of Canada, said he expects a budget document that has undergone three evolutions since Freeland’s December update: one driven by the pandemic mandate to spend for economic growth, another responding to the pressure to spend on defense after Russia’s invasion of Ukraine and, finally, a third revision inspired by the need to focus on social spending under the supply agreement and of trust between the Liberals and the NDP.
“We’re only talking about the expense side of the ledger,” Hyder told CBC News. “What we need is a real long-term growth strategy and the fiscal framework that supports that growth.”
He said he believes some of this higher-than-expected revenue should be used to pay down debt. While finance officials insist the debt-to-GDP ratio will continue to fall, Hyder said that won’t be enough to restore investor confidence.
“We’re looking for a budget framework that shows the government understands it can’t just keep spending,” he said.
“Do we know what the next crisis is? Do we know when it will be? How prepared are we for it? Because there is always another crisis and we have to prepare for it by getting our our finances.”
“What they should do is hold the line”
Scotiabank’s Young estimates the budget will include up to $70 billion in new spending — to green the economy, revive drug and dental coverage and bolster the military.
She also advises caution. The uncertainty caused by both a war in Europe and a pandemic that continues to rise and fall makes it difficult to predict what the economy will look like two or three years from now.
“There’s definitely a difference between what they should be doing and what they’re likely to be doing,” she said. “What they should do is stay the course and stop spending in the short to medium term.”
The Liberals’ fiscal message remains the same this year as it did last: the danger is not in doing too much, but in doing too little.
They intend to begin building on the Liberal campaign platform with a budget they say is both affordable and necessary to position Canada at the forefront of the post-COVID recovery.