Liberal-NDP deal could add additional $20 billion in spending over next 3 years: Economist
A Scotiabank economist said the federal government could unveil measures to help Canadians with the surging cost of living in its budget this week, similar to how several provinces have recently taken steps to ease the burden of inflation on households.
However, the feds are in a “really tricky situation,” according to Rebekah Young, director of fiscal and provincial economics at Scotiabank, since more government spending could raise consumption, which fuels inflation.
“We're at this point where, theoretically, we know that they shouldn't spend more because that in theory can put more pressure on inflation. But the practical reality is that there are some Canadians hurting very much so right now, and we do expect — at least this year — wages not to keep pace with inflation,” she said in an interview Monday.
The Quebec government announced in its budget late last month that it’s planning to send a $500 cheque to taxpayers earning $100,000 or less to help cope with the surging cost of living. Meanwhile, Alberta paused the collection of the provincial fuel tax. And Ontario is planning to temporarily reduce the fuel and gas taxes it collects, the government announced Monday.
Young estimates those provincial measures will likely equate to between $8 billion and $10 billion in support this year.
“Will the feds step in and try to help? That definitely has, you know, different implications from the inflation side versus the welfare side,” she said.
Overall, she said she would describe her expectations of the upcoming budget as “more spending.”
In addition to the federal government executing on its election campaign promises, which Young estimates could amount to $56 billion in net new spending by fiscal year 2026-27, she added that the support agreement the Liberals struck with the New Democrats could add up to $20 billion in additional spending over the three-year plan.
“I think, you know, more spending [is ahead in the budget], but [there will be] big offsets from that spending both in terms of revenue windfalls and as well as some of the commitments that the Liberals made around gaining new revenues - whether it's clamping down on tax loopholes or bank taxes,” she said.