While the federal government touted the spending in its budget as prudent, prominent Bay Street economist David Rosenberg said the extra fiscal stimulus could lead the Bank of Canada to hike its benchmark rate higher than originally thought.

“We are basically a fully-employed economy so you don't really need to add demand fuel to the fire when the economy has no output gap and the central bank is behind the eight ball. So this is going to fuel more interest rate hikes in the country against the backdrop of fiscal stimulus that is not well timed, in my opinion,” said Rosenberg, who is president, chief economist and strategist at Rosenberg Research, in an interview Friday.

The federal budget unveiled $60 billion in new spending, though that was lower than expected when compared to the December fiscal update and Bay Street predictions.

In an interview with BNN Bloomberg, Deputy Prime Minister and Finance Minister Chrystia Freeland said she recognized that the government needed to “shift gears” and signal to the provinces and individuals that the “time of extraordinary COVID spending was over.”

However, Rosenberg characterized much of the new spending as “unnecessary,” considering the state of the economy.

“What bothers me is that the government just ... made the Bank of Canada's anti-inflation strategy that much more complicated because when you look at the budget, it adds about one-third of a percentage point to this year's aggregate demand growth that it doesn't really need from a government sector. And actually, when you think about it, it’s exactly the wrong time of the cycle,” he said.

“Of course, at the margin, that's going to cause the Bank of Canada to become even more aggressive. But at the same time, the Bank of Canada is not operating policy in a vacuum. Look what's happening in the U.S. and I think that you know, the Bank of Canada probably will move in lockstep with where the U.S. is going to be going. I don't think that we're going to be deviating a lot,” Rosenberg added.

The latest labour report from Statistics Canada on Friday showed Canadian employers continued to add jobs in March, following a blockbuster jobs gain in the month prior – another sign of the economy’s resilience through the latest COVID wave. The unemployment rate fell to 5.3 per cent – the lowest level since the mid-1970s.

Meanwhile, inflation is still hovering at a three-decade high, led in part by a surge in commodity prices.

'LUCKED OUT'

The impact of the commodities boom was evident in the federal budget in the form of a significant revenue boost for the government.

“What we really lucked out on was the fact that we have this commodity-led inflation. And we are a huge commodity producer. … That was a $30 billion revenue windfall [for the government], just from the ‘commodity inflation’ that boosted the nominal GDP right there alone.

“So the other part of this is why therefore are you taxing the banks?”

As widely expected, the feds unveiled a new, albeit scaled-back, surtax on the country’s largest banks and insurers that’s estimated to bring in roughly $6 billion in new revenue.

“Taxing the financial sector for no reason in particular, it wasn't necessary. It's not as if the government had some revenue shortfall they had to cover. It's so bizarre. They had the opposite. They had a revenue windfall from this gift of commodity inflation boosting revenues. They didn't have to go do this,” he said.