The 2023 federal budget sees the Liberal government shift its tact amid an uncertain economy and Canadians in need of inflation relief, looking to save money in the near term with cost-free measures that flex its influence on areas where it can make a tangible impact.
Finance Minister Chrystia Freeland unveiled the second budget of the Liberals’ current minority mandate on Tuesday and put the focus on both reining in spending while supporting Canadians who have been hit hard by high inflation and rising interest rates.
“Our most vulnerable friends and neighbours are still feeling the bite of higher prices,” she said in a speech to Parliament Tuesday afternoon, according to her prepared remarks. “And that is why our budget delivers targeted inflation relief to those who need it most.”
The biggest line item on the affordability front is $2.5 billion in spending for a so-called “grocery rebate” aimed at lower-income households, as reported by Global News and others ahead of Tuesday’s budget release.
The one-time rebate is expected to deliver $467 directly to a family of four, $234 to a single Canadian without kids and $225 to the average senior.
An estimated 11 million Canadian households are expected to receive the boost via the GST tax credit mechanism, and it does not have to be spent on groceries.
Speaking to Global News after tabling the budget, Freeland would not give a specific timeline on when the rebate would show up in Canadians’ bank accounts, but predicted it would roll out within “the next couple of months.”
Other measures announced in the 2023 budget without costs attached are a plan to crack down on so-called “junk fees” attached to concert tickets or baggage costs, as well as plans to move towards an automatic tax filing system to ensure low-income Canadians take advantage of already available rebates.
The federal government also announced plans in the budget to follow in the European Union’s footsteps towards a universal standardized charging port for devices like smartphones, and to roll out a right-to-repair framework to help reduce electronic waste and keep Canadians’ existing devices running for longer.
In addition to costs tied to the GST rebate, Budget 2023 includes a net $43 billion in spending on major initiatives including clean-tech tax credits, an expanded dental care program and previously announced health-care deals with the provinces.
There are also regulatory changes signalled in the spending document: a plan to tamp down interest rates offered by predatory loan services; directions to banks to offer relief for Canadians suffering from expensive mortgages; a push to crack down on tax evasion among the wealthy.
Sahir Khan, executive vice-president at the University of Ottawa’s Institute of Fiscal Studies and Democracy, says it’s a relatively small budget for the Liberals, who have generally increased the size of the government in their three consecutive terms in office.
Among the items aimed at affordability, Khan says the Liberals are trying to provide struggling Canadians with relief ‘without having to write a big cheque for it.”
“This is a bit of a departure from some of the big spending budgets that we’ve seen from the Liberal government,” he says.
What did the Conservatives, NDP say?
Conservative Party Leader Pierre Poilievre called the 2023 budget a “full-frontal attack on the paycheques of hard-working Canadians” in an address to reporters after the budget was tabled Tuesday.
He criticized the increase in spending as “inflationary” and lamented that the Liberals did not have a plan to eliminate the deficit, nor the carbon tax, which is set to rise on April 1.
“More inflation, more taxes and more costs for everyday people,” he said.
Freeland told Global News she didn’t want Conservatives “scaremongering” or “talking Canada down” over a budget she said was fiscally responsible while making necessary investments.
“What would you cut?” she asked. “Would you cut the grocery rebate cheques to the most vulnerable Canadians? I sure wouldn’t … Would you cut the investment that we announced in February in Canada’s health system, or the expansion of the dental care system? I sure wouldn’t do that.”
“Would you cut our investments in the clean economy? And here, really it’s the question of, do you believe in investing in Canada’s economic capacity in the future? I sure do believe that we have to do it.”
NDP Leader Jagmeet Singh, meanwhile, said he was “proud” that the party’s supply-and-confidence agreement with the Liberals had “forced” the minority government to the table on dental care and the grocery rebate.
Singh claimed these pocketbook measures would not have been in the 2023 budget without the NDP’s influence.
He added, however, that he was “not satisfied” the Liberals failed to respond to the housing crisis or overhaul the employment insurance program ahead of a feared recession.
Singh confirmed his party would support the budget.
Liberals keep powder dry amid economic uncertainty
The Liberals are proposing to cut more than $15 billion in spending from the government’s books over the next five years, reducing the amount departments and Crown corporations spend on contracting out services and travel.
Elsewhere, changes to the tax regime aimed at ensuring wealthy Canadians and corporations pay more are expected to net the government nearly $12 billion over the coming five years.
Freeland said in her speech Tuesday that the government was keeping major spending plans to a minimum in this budget amid an uncertain economic environment ahead, both for Canada and globally.
The 2023 budget includes a summary of private sector economist forecasts, as well as “upside” and “downside” scenarios depending on whether risks materialize or how severely parts of Canada’s economy react to pressures like higher interest rates.
In general, the consensus of economists is dourer than when the federal government last polled the private sector for its 2022 fall economic statement.
Economists now “expect the Canadian economy to enter a shallow recession in 2023.”
The downside scenario sees a more severe downturn, while the upside forecast would see Canada hit a “soft landing” and avoid a prolonged contraction.
Recent turmoil in the global banking sector that has seen numerous banks, including Silicon Valley Bank, collapse, prompting fears of wider instability in the industry, has “raised the odds of a more pronounced slowdown,” according to the budget document.
The worst-case scenario would see Canada’s unemployment rate rise to a peak of 6.9 per cent in the first quarter of 2024, from today’s near-record lows of just above 5.0 per cent.
The better-case scenario would see unemployment average 5.6 per cent next year.
Khan says that heading into the 2023 budget that the Liberals needed to keep some of their spending power in reserve should the economy take a turn for the worse. If that came to pass, not only would Canadians be more in need of support, but the government’s revenues would be lower as a result of a weaker economy, limiting the relief it could offer.
Freeland hinted at that rainy-day scenario in her speech Tuesday to the House of Commons.
“By exercising fiscal restraint, we are ensuring that we can continue to invest in Canadians and in the Canadian economy for years to come,” she said.
The 2023 spending plans will see the Liberals’ closely watched fiscal anchor, the debt-to-GDP ratio, rise in the coming year before returning to a downward trajectory. The initial bump in this metric for the year ahead is tied largely to an expected slowdown GDP growth, even as spending is reined in, according to a senior government source.
While the Liberals briefly projected a return to government surpluses after five years of deficits in its most recent fall economic statement, the 2023 budget no longer has a path back to balance.
A ‘shift in tone’
Khan says the Liberals achieved their stated goal of remaining “broadly fiscally sustainable” in its 2023 spending plans, though he highlights some risks to Ottawa’s projections.
Some of the savings baked into its outlook come from spending cuts that haven’t necessarily been found yet and from greater tax yields, which might not work as planned, he says. If these improvements in the fiscal picture don’t materialize, the deficit could end up larger than projected in the budget, Khan warns.
Reporters asked Freeland in the budget lock-up before the document was tabled in the House of Commons on Tuesday about whether the savings would come from a public sector hiring freeze or layoffs.
“No it does not,” she said in response, adding that she thinks “those savings are imminently attainable.”
Freeland pledged in her pre-budget talks that the government would look to support vulnerable Canadians without “pouring fuel on the fire of inflation” — a goal that Khan says the Liberals appear to have met.
He says the net $43 billion of spending outlined in the latest federal budget is a “drop in the ocean” when compared to the size of Canada’s economy, which is forecast to hit the $ 3 trillion mark in the years ahead.
Private sector forecasts for inflation in the budget see price pressures cooling to 3.0 per cent in the third quarter of this year and below the Bank of Canada’s2.0 per cent target in the second quarter of 2024. Khan says this is thanks to both improvements in global supply chains and the projected cooling in Canada’s economy.
The 2023 budget shows a sense of “realism” in what Ottawa can make an impact on as opposed to what it can’t, he notes, highlighting housing affordability as one area that got a few paragraphs in the document but is ultimately more in the provincial and municipal spheres of influence.
Khan says that, overall, the Liberals are offering a “shift in tone” with this budget that simplifies its approach to priority funding areas.
In clean tech, for example, the 2023 budget will use tax credits “rather than complicated instruments” like large funds or a new bank to oversee investments, he says.
Crackdowns on predatory lending and junk fees also target tangible pains in Canadians’ pocketbooks without increasing government spending, Khan notes.
“These are all things the government can do without spending money,” he says.
“They’re using low-cost, low-complexity instruments to get things done. And that’s a departure from some of the over-ambitious measures they’ve used in the past.”
Craig Alexander, president of Alexander Economic Views, said in an email to Global News on Tuesday that the bump in the debt-to-GDP ratio and projection for five more years of deficits suggests the government is in an “inflationary” fiscal position.
The Bank of Canada said recently it would be watching the budget carefully and would revise its inflation forecasts based on federal spending inputs.
“The question then becomes, how inflationary?” Alexander noted in an email. “I think it is only modestly inflationary and probably not enough to worry the Bank of Canada.”
BMO senior economist Robert Kavcic said in a note to clients Tuesday that, though inflation has cooled in recent months, the central bank is still in a “dog fight” with price pressures.
The ongoing effort to rein in inflation would have made direct supports to Canadians “counterproductive,” Kavcic said, noting Ottawa couldn’t “fully resist on that front” with the grocery rebate.
“All told, this budget continues to push fiscal priorities against a weaker and riskier economic backdrop, leaving behind a deeper deficit path,” he said.
— with files from Global News’ Anne Gaviola and Sean Boynton