Ottawa has failed to provide a path to a balanced budget in its latest economic plan update. Although the deficit and debt as a share of the economy are expected to gradually decrease, the fiscal position is projected to worsen in the later years as compared to the forecast in March.
The Finance Minister characterized the major investments made in public transit, electric vehicle factories, and new energy projects as “foundational investments which only government can make”. However, some experts disagreed, stating these investments could potentially be “strategically foolish”.
The government’s economic statement highlighted major spending initiatives in housing and the green economy over the current and next five fiscal years. The Liberal government claims its economic plan is responsible, noting the country has the lowest deficit-to-GDP and debt-to-GDP ratios in the G7.
The fiscal anchor outlined in the economic statement includes a declining federal debt-to-GDP ratio throughout the projection horizon, focusing on maintaining the deficit and deficit-to-GDP ratios. However, one expert pointed out that this tighter fiscal anchor could kill universal pharmacare. The sum of total new spending since the budget shows a significant increase in the deficit projection for fiscal year 2027-28.
Interest costs for the country’s debt have risen since the budget projection from 2020-21. While higher public debt charges are forecasted for the coming years, some blame for increased spending lies with provincial governments, and increased government spending is contributing to the Bank of Canada’s policy rate increases.
The government’s housing initiative received criticism from experts, with one saying the housing crisis in Canada cannot be solved by additional capital, and that laws and regulations restricting housing construction are the main causes. While the economy is expected to grow in the next few years, predictions show that unemployment will also rise and Canadians are more indebted than they’ve been in past recessions. Rate cuts are expected to occur in the second quarter of 2024.