OTTAWA – A federal budget surplus is on the distant horizon for the first time since the Liberals came to power, but the rest of the fall budget update clouds that picture with the risk of recession and promises to spend much more to support Canada’s transition in a clean and green economy.
The Liberals will also have to hold another election before they get there.
The fall economic statement presented by Finance Minister Chrystia Freeland to the House of Commons on Thursday, along with a bill to implement it, includes new measures to boost investment in clean energy and help Canadians struggling to keep up with growing cost of living.
Overall, the mini-budget proposes relatively modest new spending amid growing political pressure to show fiscal restraint after massive pandemic-era spending.
It also contains a more pessimistic alternative outlook and warns that plans go awry.
The $30.6 billion pledged over the years to 2027-28 includes money earmarked for three previously announced affordability measures: a temporary doubling of the GST credit, a housing benefit top-up and a dental care allowance intended to counter the way for a broader dental care program was included in the deal made by the Liberals with the New Democrats.
The update was seized with matching clean energy investments and tax incentives recently made in the United States through the Inflation Reduction Act.
He also promised some affordability measures, such as permanently eliminating federal interest charges on student loans and revamping the Canada Workers Benefit so that people who qualified this past year could receive an advance instead of waiting to file their tax returns. the statements.
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In her speech to the House of Commons on Thursday, Freeland reiterated the federal government’s commitment to stay out of the central bank’s efforts to fight rapidly rising prices.
“As the Bank of Canada fights inflation, we’re not going to make its job any harder,” Freeland said in a transcript of her speech provided in advance.  “We are compassionate and we are also responsible.”
NDP Leader Jagmeet Singh said while he believes the budget update falls short of the help Canadians suffering from higher prices for essential goods need, his caucus plans to support the Liberal minority government’s implementation bill.
Opposition leader Pierre Poiliev released the document, arguing it would fuel inflation.
“The Conservatives will stand up for the common people,” Poilievre said inside the House.  “Their wages, their homes, their savings and we will vote against this inflationary scheme.”
Scotiabank director of fiscal and provincial finance Rebekah Young said the new measures won’t fan the flames of high inflation since much of the spending won’t flow in this year.
“What we’re seeing today is not going to drive inflation by itself,” Young said.
Decade-high inflation has put pressure on the federal government to avoid fueling inflation with additional spending as the Bank of Canada raises interest rates.
The Liberals are also proposing a two per cent tax on corporate share buybacks in a bid to encourage companies to invest in their domestic operations and workers.
Freeland said the Liberal government thought it was the right policy to incentivize investment.
“We want to see big Canadian companies take their profits and invest them in Canadian manufacturing capacity and invest them in their workers,” Freeland said during a news conference in Ottawa.
“This tax on share buybacks is designed to do just that.”
The budget update also commits another billion dollars to disaster relief this fiscal year to help with recovery efforts from damage caused by post-tropical storm Fiona in Atlantic Canada and eastern Quebec.
As a growing number of economists predict an imminent recession, the budget update outlined multiple scenarios that could play out and based its outlook for the economy on the average of private economic forecasts.
Baseline scenarios suggest the Canadian economy will grow by 3.2 per cent in 2022, down from the April budget forecast of 3.9 per cent.  It will be followed by significantly slower growth of 0.7% in 2023, which the April budget forecast had pegged at 3.1%.
The “decline scenario,” which sees high inflation rates persisting for longer and leading to even tighter monetary policy, puts Canada in a “mild recession” next fiscal year.
For the current fiscal year, the interim budget update projects a deficit of $36.4 billion, about $16 billion lower than expected in the spring budget, thanks to high inflation and a strong economic recovery that is boosting government revenues .
The fiscal update says federal debt as a share of GDP is 42.3 percent in fiscal 2022-23 and is projected to decline steadily until it reaches 37.3 percent in fiscal 2027-28.
The federal government projects a budget surplus of $4.5 billion in the 2027-28 fiscal year, although the most pessimistic scenario says that year will bring a deficit of $8.3 billion.
This is the first time the Liberals have forecast a balanced budget since coming to power in 2015, preferring in previous documents to emphasize reducing debt to GDP.
Prime Minister Justin Trudeau, when campaigning as Liberal leader that year, had promised to run only three years of “modest, short-term” deficits before balancing the budget in 2019.
Freeland recognized the importance of looking ahead to be back in the black.
“It is by design, to the extent that it is the result of our consistent and strong investments in Canadians and the Canadian economy,” Freeland told reporters.  “Specifically, I would say it’s thanks to Canada’s extremely strong recovery from the COVID recession.”
Getting there, however, may be difficult amid rising risks of a global recession, Yang said.
The economist said the Canadian economy is heavily influenced by global economic forces, including central banks raising interest rates to curb high inflation.
“These exogenous drivers could really affect how things look over the next couple of years,” Young said.
The forecast also does not take into account future spending plans, adding another layer of risk about whether the federal government actually runs a surplus.
The budget update suggests more clean energy investment will be outlined in the upcoming spring budget.
This report by The Canadian Press was first published on November 3, 2022.