In her first budget a year ago, Chrystia Freeland told Canadians that there was a risk of doing too little to secure the post-pandemic recovery.
As the finance minister prepares to deliver her second financial plan later this week, there’s every expectation that she will continue to spend.
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Between the Liberals’ own election pledges — on housing, climate change and seniors — and commitments to pursue universal dental and drug care through the party’s supply and confidence deal with the New Democrats, the budget is expected to include billions of dollars in new spending.
All of it is affordable, Freeland argued last week in the House of Commons.
“The reality is that Canada is resilient and our economy is recovering well from the COVID‑19 recession,” she said. “Our GDP grew 6.5 per cent in the fourth quarter, making us the second strongest economy in the G7. We have recovered 112 per cent of the jobs lost because of the pandemic, compared to only 90 per cent in the United States.”
There are other favourable indicators, too.
Oil and gas revenues will be significantly higher this year as the price of oil remains at or above $100 a barrel. Corporate and personal income taxes are up by as much as 15 per cent over last year, according to Rebekah Young, director of fiscal and provincial economics at Scotiabank.
The downside is inflation, which is running at nearly 6 per cent.
Young said the danger Freeland faces with this year’s budget lies in doing too much rather than too little.
“Any sort of fiscal stimulus that goes directly to Canadian households tends to be spent quickly, especially by lower-income households,” she said. “That creates more demand for goods and pushes prices up.”
So what should Canadians expect?
For starters, the budget is expected to include a down payment on the housing promises the Liberals made in their 2021 campaign platform.
That would include an initial investment in a housing accelerator fund to kick-start construction of new, middle-class homes, an increase in the tax credit for first-time homebuyers and new money to convert empty office towers into condominiums.
In an interview that aired this past weekend on CBC’s The House, NDP Leader Jagmeet Singh said the negotiations leading to the supply and confidence agreement touched on other measures to alleviate the housing crunch.
“In the agreement we included a bill of rights for buyers, which would include a ban on blind bidding, which would include movement on foreign ownership and some of the other pressures that are driving up the costs,” he said.
“So there are a number of components of the agreement that specifically speak to this crisis that’ll help people find a home that’s in their budget. That should be in the budget because there have been things we negotiated.”
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Government insiders say the budget also will offer an initial instalment to address the NDP’s demand for universal drug coverage and dental care for children.
There will be additional investments to reduce carbon emissions and help create jobs in green technology, and more money to address the lingering health-care issues the pandemic exposed in long-term care facilities.
Liberals who spoke on background (because they were not authorized to discuss the budget publicly) said this week’s budget marks a return to a more normal approach to fiscal planning.
The agreement with the NDP, which is supposed to prevent another election until 2025, allows the government to move incrementally, to address priorities over several budget cycles rather than just one.
A budget pulled in three different directions
But some groups think it’s a mistake to use the windfall from higher tax and energy revenues to expand programs when the government continues to run large deficits.
Goldy Hyder, head of the Business Council of Canada, said he’s expecting a budget document that’s gone through three evolutions since Freeland’s December update: one driven by the pandemic mandate to spend on economic growth, another responding to the pressure to spend on defence after Russia’s invasion of Ukraine and, finally, a third revision inspired by the need to focus on social spending as part of the Liberal-NDP supply and confidence accord.
“We only talk about the spending side of the ledger,” Hyder told CBC News. “What we need to see is an actual long-term growth strategy and the fiscal framework that supports that growth.”
He said he believes some of that higher-than-expected revenue should be used to pay down debt. While finance officials insist the debt-to GDP ratio will continue to decline, Hyder said that’s not going to be enough to restore investor confidence.
“We’re looking for a fiscal framework that shows the government understands that it can’t just keep on spending,” he said.
“Do we know what the next crisis is? Do we know when it will be? How ready are we for it? Because there is always another crisis and we have to get ready for it by getting our financial house in order.”
‘What they should be doing is holding the line’
Scotiabank’s Young estimates the budget will include as much as $70 billion in new spending — to green the economy, to kick-start pharmacare and dental coverage and to shore up the military.
She also advises caution. The uncertainty caused by both a war in Europe and a pandemic that continues to ebb and flow makes it hard to predict what the economy will look like two or three years from now.
“There’s definitely a difference between what they should do and what they are likely to do,” she said. “What they should be doing is holding the line and not spending any more over the short and medium term.”
The Liberals’ budget message remains the same this year as it was last year: the danger is not in doing too much, but in doing too little.
They intend to start building on the Liberal campaign platform with a budget that they’ll insist is both affordable and necessary to position Canada at the forefront of the post-COVID recovery.
