(Bloomberg) -- Canadian Finance Minister Chrystia Freeland released a budget update that showed the government plans to spend almost half of a revenue windfall this fiscal year. Spending measures include new help for low-income workers and students, as well as funding for clean technology investments. The fiscal trajectory is on track for a balanced budget within five years.

Deficits and Debt

  • Thursday’s fiscal statement shows windfall gains in the current fiscal year of C$29.8 billion ($21.7 billion) and about C$81 billion through fiscal 2026-27.
  • The government is allocating about half of that to various priorities, with C$13.4 billion in new spending this year and C$44 billion through 2026-27. That includes the cost of measures that were first announced in September.
  • This year’s bottom line will be much better even with the new spending, with the deficit projected at C$36.4 billion versus C$52.8 billion seen in April.
  • The deficit next year will be C$30.6 billion versus previous projections for C$39.9 billion, and the budget is to be effectively balanced by 2026
  • The finance department uses economists’ forecasts to make its fiscal projections, and the base-case scenario remains a very soft landing. While the expansion is seen slowing to 0.7% this year, the economy is forecast to grow 1.9% in 2024 and 2.3% in 2025.
  • Real gross domestic product is seen averaging 2% over the projection horizon -- faster than the average of the past 20 years

Buybacks and Credits

  • Freeland is following US President Joe Biden’s example by taxing share buybacks, but raising the stakes. The federal government aims to impose a 2% tax starting Jan. 1, 2024 on the net value of all types of buybacks. The move, which aims to companies more of an incentive to invest in their businesses, is expected to generate C$2.1 billion over five years
  • The sweetener for businesses are new tax credits -- up to 30%, for investment in clean technologies, including battery storage and clean hydrogen. The credit is expected to cost C$6.7 billion over five years
  • The government is also allocating money to help youth find jobs, provide support to process settlement of new immigrants and allocate new funding for research. There’s also new money to increase capacity at regulatory agencies that oversee resource projects -- to speed up reviews

Inflation Support

  • Freeland announced a second set of measures to help low-income Canadians with the impact of higher inflation. The government is allocating C$4 billion over four years to provide advance payments to Canadians who qualify for a low-income benefit program
  • Freeland is also helping low-income students by making the federal portion of school loans permanently interest-free, at a cost of C$2.7 billion over five years

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