Fall fiscal update preview
Finance Minister Chrystia Freeland said she will present a budget update on Nov. 3, a document expected to show Canada’s government on an improved fiscal track thanks to surging revenue.
But with an economic downtown expected next year due to aggressive interest-rate hikes, the update will also come with uncertainty over how hard the landing will be.
Prime Minister Justin Trudeau is attempting to strike a balance between assisting Canadians with skyrocketing consumer prices while not adding fuel to inflation with excessive spending. In September, he announced a package of measures including a temporary increase in a sales-tax rebate for lower-income Canadians at a cost of $2.5 billion and a top-up to rental housing benefits worth about $700 million.
Freeland’s update will continue along that same path, according to one official familiar with its preparation. The document will elaborate on how the government’s measures will help Canadians cope with 40-year-high inflation, but won’t promise costly new programs as the finance minister emphasizes spending restraint.
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There are already signs of how the revenue windfall from inflation and higher energy prices is improving the government’s bottom line.
Canada’s federal budget deficit fell to $90.2 billion in the fiscal year ending March 31, compared with Freeland’s forecast in April of $113.8 billion, according to the finance department’s annual financial report published on Thursday. That’s down from $328 billion in the previous fiscal year.
But economic headwinds are building. The Bank of Canada delivered a smaller-than-expected rate hike on Wednesday and revised down its growth forecasts, predicting the economic expansion will stall and possibly even contract in coming months.
The central bank cut its gross domestic product forecast for 2023 by half to 0.9 per cent, and predicted economic growth will decelerate to an annualized 0.5 per cent pace in the fourth quarter of this year.
Freeland’s budget update will also signal how the government intends to respond to the green-energy tax credits enacted by U.S. President Joe Biden’s administration in August.
U.S. incentives for projects including carbon capture technology and hydrogen production are now more generous than Canadian measures unveiled in April. While the oil and gas sector is pushing Freeland to do more, officials familiar with the issue told Bloomberg News this month that if they choose to boost funding the money wouldn’t come until a full budget due next year.