Ottawa will have to cut spending by $12 billion a year to meet its targets
(Ottawa) The Trudeau government will be unable to meet its deficit targets starting in 2026-2027, based on current economic projections, unless it cuts spending by at least $12 billion per year.
At least that's the conclusion drawn by the Business Council of Canada (BCC) in a study of measures proposed by Finance Minister Chrystia Freeland in her latest economic update tabled in November to bring greater fiscal discipline to Ottawa.
In this economic update, Freeland announced that the Trudeau government will establish a new fiscal anchor: keeping deficits below 1% of gross domestic product (GDP) in 2026-2027 and beyond.
According to this formula, the deficit should not exceed $32 billion this fiscal year, as the Department of Finance estimates that GDP will reach $3202 billion in 2026.
According to the CCA, the government will miss this target. Goldy Hyder, president and CEO of the organization that represents the country's largest employers, expressed skepticism about new fiscal restraint in Ottawa in a letter to Prime Minister Justin Trudeau.
"The deficit today is 1.4% of GDP. Assuming no new taxes and weak economic growth, as projected by the Bank of Canada, a 0.4 per cent reduction in the deficit implies a reduction in spending of at least $12 billion per year or $50 billion over five years. Given that your government has increased spending by more than 5 per cent on average per year since 2016, the proposed fiscal anchor is simply not credible," Hyder said in his three-page letter.
La Presse obtained a copy of the letter, which was sent ahead of the federal cabinet's three-day retreat in Montreal. The retreat, which begins on Sunday evening, is intended to prepare for the resumption of parliamentary proceedings on Monday, January 29.
During the cabinet retreat, Trudeau and his ministers will discuss issues of the day such as the housing crisis, rising cost of living and immigration policies, as well as the potential impact of November's U.S. presidential election on Canada-U.S. relations.
Since coming to power in 2015, the Trudeau government has never presented a balanced budget. In last November's economic update, Minister Chrystia Freeland confirmed that Canada's slowing economy and rising interest rates were putting more pressure on the government's finances than expected and would increase the size of deficits over the next five years.
Significant financial pressuresThe CCA's analysis, authored by Robert Asselin, former budget director for former Finance Minister Bill Morneau who is now first vice-president of the CCA, points out that the Trudeau government is facing significant financial pressures less than two years before the next federal election.
Asselin points out that the New Democratic Party, which supports Justin Trudeau's minority government in the House of Commons in confidence votes, is demanding the creation of a national pharmacare program, a measure that could cost up to $18 billion a year once implemented.
"Second, Canada is facing significant demographic changes that will impact Old Age Security and health care costs. Added to this list are real pressures on defence spending, energy transition and industrial policy, research and development, and Indigenous reconciliation. It is unlikely that the government will be able to ignore any of these major political issues," notes Mr. Asselin in his analysis.
In his letter to the Prime Minister, Hyder also lamented the Liberal government's slow pace in implementing its promise to submit a plan by the end of 2023 to speed up the assessment of major energy projects. To make matters worse, the government has not even begun to draft this plan, which is eagerly awaited by investors, communities with promising projects and interested groups.
Already, Canada has an unfortunate reputation abroad that approval of natural resource projects can take years or even a decade to complete, according to some senior ministers in the Trudeau government.
"Any delay in correcting the federal project approval process creates uncertainty, discourages investment, and moves Canada away from its goal of transitioning to a low-carbon economy. As a result, Canada and Canadians are losing ground," said Hyder.
He also notes that the Trudeau government has not yet implemented the tax credits mentioned by Ottawa in order to stimulate investments for the energy transition and compete with the measures of the Inflation Reduction Act of the Joe Biden administration in the United States.
At least that's the conclusion drawn by the Business Council of Canada (BCC) in a study of measures proposed by Finance Minister Chrystia Freeland in her latest economic update tabled in November to bring greater fiscal discipline to Ottawa.
In this economic update, Freeland announced that the Trudeau government will establish a new fiscal anchor: keeping deficits below 1% of gross domestic product (GDP) in 2026-2027 and beyond.
According to this formula, the deficit should not exceed $32 billion this fiscal year, as the Department of Finance estimates that GDP will reach $3202 billion in 2026.
According to the CCA, the government will miss this target. Goldy Hyder, president and CEO of the organization that represents the country's largest employers, expressed skepticism about new fiscal restraint in Ottawa in a letter to Prime Minister Justin Trudeau.
"The deficit today is 1.4% of GDP. Assuming no new taxes and weak economic growth, as projected by the Bank of Canada, a 0.4 per cent reduction in the deficit implies a reduction in spending of at least $12 billion per year or $50 billion over five years. Given that your government has increased spending by more than 5 per cent on average per year since 2016, the proposed fiscal anchor is simply not credible," Hyder said in his three-page letter.
La Presse obtained a copy of the letter, which was sent ahead of the federal cabinet's three-day retreat in Montreal. The retreat, which begins on Sunday evening, is intended to prepare for the resumption of parliamentary proceedings on Monday, January 29.
During the cabinet retreat, Trudeau and his ministers will discuss issues of the day such as the housing crisis, rising cost of living and immigration policies, as well as the potential impact of November's U.S. presidential election on Canada-U.S. relations.
Since coming to power in 2015, the Trudeau government has never presented a balanced budget. In last November's economic update, Minister Chrystia Freeland confirmed that Canada's slowing economy and rising interest rates were putting more pressure on the government's finances than expected and would increase the size of deficits over the next five years.
Significant financial pressuresThe CCA's analysis, authored by Robert Asselin, former budget director for former Finance Minister Bill Morneau who is now first vice-president of the CCA, points out that the Trudeau government is facing significant financial pressures less than two years before the next federal election.
Asselin points out that the New Democratic Party, which supports Justin Trudeau's minority government in the House of Commons in confidence votes, is demanding the creation of a national pharmacare program, a measure that could cost up to $18 billion a year once implemented.
"Second, Canada is facing significant demographic changes that will impact Old Age Security and health care costs. Added to this list are real pressures on defence spending, energy transition and industrial policy, research and development, and Indigenous reconciliation. It is unlikely that the government will be able to ignore any of these major political issues," notes Mr. Asselin in his analysis.
In his letter to the Prime Minister, Hyder also lamented the Liberal government's slow pace in implementing its promise to submit a plan by the end of 2023 to speed up the assessment of major energy projects. To make matters worse, the government has not even begun to draft this plan, which is eagerly awaited by investors, communities with promising projects and interested groups.
Already, Canada has an unfortunate reputation abroad that approval of natural resource projects can take years or even a decade to complete, according to some senior ministers in the Trudeau government.
"Any delay in correcting the federal project approval process creates uncertainty, discourages investment, and moves Canada away from its goal of transitioning to a low-carbon economy. As a result, Canada and Canadians are losing ground," said Hyder.
He also notes that the Trudeau government has not yet implemented the tax credits mentioned by Ottawa in order to stimulate investments for the energy transition and compete with the measures of the Inflation Reduction Act of the Joe Biden administration in the United States.