Will Budget 2023 make life more affordable for Canadians? Here’s what experts say

Click to play video: 'Federal budget 2023: Will government’s fiscal plan make life more affordable for Canadians?'
Federal budget 2023: Will government’s fiscal plan make life more affordable for Canadians?
The 2023 federal budget saw the Liberals hike up their spending plans and devote plenty of attention to affordability concerns, but experts are unconvinced the proposals will make a dent in the finances of everyday Canadians — nor the country’s economic trajectory. Global's Anne Gaviola talked with economists to find out whether the government managed to thread the needle between helping Canadians and being careful not to stoke inflation – Mar 29, 2023

The 2023 federal budget saw the Liberals hike up their spending plans and devote plenty of attention to affordability concerns, but experts are unconvinced the proposals will make a dent on the finances of everyday Canadians, nor the country’s economic trajectory.

Economists had told Global News that Finance Minister Chrystia Freeland was in a tough spot heading into the 2023 budget, the second of the Liberals’ current minority mandate.

Click to play video: 'Liberals pitch their ‘fiscally responsible’ budget'
Liberals pitch their ‘fiscally responsible’ budget

Canadians have struggled to make ends meet for months amid cooling but still-high inflation and rapidly rising interest rates. Yet with a slowing economy and possible recession on the horizon, the government was also tasked with keeping some funds in reserve to avoid overspending and re-stimulating inflation.

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Freeland said Tuesday that the 2023 budget shows “fiscal restraint” while also delivering “targeted inflation relief to those who need it most.”

But Pamela George, a financial literacy counsellor who works with women, says the 2023 spending plan is “subpar” from an affordability lens.

“It’s nothing to write home about. I’m not shouting and celebrating anything,” says the Ottawa-based founder of Sand Dollar Financial Literacy Counselling.

Measures in the budget like the so-called grocery rebate, which tops up the GST rebate with an average of $467 to a family of four and $234 to a single Canadian, do not go far enough to offset rapid rises in the cost of food, mortgage rates and rent that George says her clients are struggling to keep pace with.

While she acknowledges that “every dollar counts,” she tells Global News that the rebate won’t help Canadians “in a way that is meaningful.”

Alongside the grocery rebate in the budget were pledges to crack down on “junk fees” — extra costs tacked onto concert tickets, airfare or food deliveries before checkout — as well as proposals for tax changes to help low-income households and to introduce a code of conduct to direct lenders to help Canadians with ballooning mortgage costs.

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But George says she was hoping to see more “solid stuff” in the budget and fewer promises for changes to come.

“When I hear things like, ‘we’re going to do this,’ or ‘we’re looking into this,’ I just feel it’s stalling,” she says.

Global News asked Canadians to write in with their impressions of whether the 2023 budget would help with their affordability challenges.

Among responses received via email, many expressed a common thread of disappointment in a lack of new support for seniors and those living with disabilities.

George says that among her senior clients, there was little optimism that federal support would rescue them from their affordability concerns. She says seniors are more often finding ways to boost their incomes themselves, for example by renting out a room in their homes or getting regular boosts from family members.

“Seniors have had to resort to finding a way to make things work for themselves,” she says.

Click to play video: 'A closer look at the federal government’s grocery rebate'
A closer look at the federal government’s grocery rebate

The budget also sought to crack down on predatory lending and payday loans, limiting how high of interest rates these services can offer and capping charges at $14 per $100 borrowed.

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Much of George’s work involves helping clients escape the cycle of debt created when they took out a payday loan in a time of desperation, such as the start of the COVID-19 pandemic. She does not think the government’s strategy to limit future vulnerabilities in this space will help her clients who have been stuck trying to pay off loans with exorbitant interest rates for years.

“I have clients with payday loans and this is no light at the end of the tunnel for them,” she says.

Will the budget fuel inflation?

Alicia MacDonald, an economist with Deloitte Canada, says that outside of the grocery rebate and a few “small initiatives,” the budget was lacking in affordability measures, despite how widely the concerns were discussed heading into the budget.

“Given the inflationary pressures that we have been experiencing, it would have been nice to see a bit more targeted measures on the affordability side,” she says.

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The federal government was under heavy scrutiny heading into the budget to avoid stimulating the economy by giving too much direct support to Canadians and inadvertently driving spending and inflation higher all over again.

Yet the government had spending priorities to meet tied to its supply-and-confidence agreement with the New Democrats. NDP Leader Jagmeet Singh said he was “proud” the party had “forced” the Liberals to the table on measures such as expanding dental care.

Click to play video: 'Federal Budget 2023: How Freeland balanced fiscal concerns with cabinet, NDP demands'
Federal Budget 2023: How Freeland balanced fiscal concerns with cabinet, NDP demands

Ottawa’s 2023 budget projects more deficits coming over the next five years, compared with the fiscal position outlined in the fall economic statement that saw the government’s books returning to balance in the same timeframe.

“We did see federal spending increase to the tune of billions of dollars a year over the next five years. And we know that extra spending will stoke demand in the economy. And that’s where the concern over inflation fits in,” MacDonald says.

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But despite the higher spending plans, MacDonald does not think the 2023 budget will end up “significantly” fuelling inflation.

“The government did manage to thread the needle and walk that fine line between introducing some important policy initiatives while also being mindful of overstimulating an economy that’s already in excess demand,” she says.

The federal government’s forecast sees inflation returning to three per cent in the third quarter of this year and to two per cent in the second quarter of 2024. That’s largely “in line” with Deloitte’s own expectations, MacDonald said.

Craig Alexander, president of Alexander Economic Views, tells Global News that while measures like the GST top-up might be “inflationary,” the modest relief for low-income Canadians who are hit hardest by inflation makes both economic and political sense for the Liberals.

But that doesn’t mean that higher spending won’t weigh on the government’s books, he notes.

“The Trudeau government had to walk a very difficult line in terms of delivering a budget that Canadians will support, but one that will also not cause higher inflation,” Alexander says.

“And I think they’ve done that, but they’ve done it in a way that ultimately also means that we’re going to be paying a lot more on government debt because of the amount the government’s going to have to borrow.”

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Click to play video: 'Federal Budget 2023: Will the Liberals’ plan help or hurt Canada’s inflation rate?'
Federal Budget 2023: Will the Liberals’ plan help or hurt Canada’s inflation rate?

What will the Bank of Canada do?

One party expected to be watching the 2023 budget carefully was the Bank of Canada, which bakes government spending plans into its forecasts for inflation, and by extension, its path for interest rates. The central bank’s rate hikes are on a conditional pause after more than a year of aggressive increases, with the next decision and revised inflation forecasts coming on April 12.

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RBC senior economist Josh Nye tells Global News that the Bank of Canada had recently signalled that higher than expected government spending would translate to more “domestic demand,” which he interprets as code for “inflationary pressure.”

The Liberal government’s COVID-19 supports likely stretched too long, Nye says, and wound up fuelling Canada’s currently overheated economy and decades-high inflation.

“That failure to right-size fiscal policy coming out of the pandemic did make the Bank of Canada’s job more difficult and was probably one of the reasons that they had to raise interest rates as aggressively as they did over the past year,” he says.

When it comes to the 2023 budget, Nye says he’s not sure the federal government stuck to its messaging that it would avoid overstimulating the economy once again.

“The finance minister tried to position this as a fiscally prudent budget. But I mean, when you look at the scale of the new spending and the size of deficits that are expected in the next several years, this is a big budget,” he says.

But will the government’s 2023 spending plans alone be enough to bring the Bank of Canada off the sidelines and lead to another rate hike in April? Economists who spoke to Global News don’t think so.

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Among the factors driving down price pressures in recent months is an overall slowing trend in the economy, MacDonald says, and a forecast recession is expected to take even more steam out of inflation.

Click to play video: 'Federal Budget 2023: Economy made ‘remarkable recovery from COVID recession,’ Freeland says'
Federal Budget 2023: Economy made ‘remarkable recovery from COVID recession,’ Freeland says

“This recession is expected to be quite short and mild compared to historical recessions. It will work to bring inflation down, which will allow the Bank of Canada to begin reducing interest rates,” she says.

Even if the federal government spending plans puts pressure on the Bank of Canada to raise interest rates higher, uncertainty beyond the country’s borders are simultaneously pushing central banks to avoid overtightening, Nye says.

Recent turmoil in the global banking sector following the collapse of Silicon Valley Bank in the United States has raised concerns that rising borrowing costs could put some financial institutions at risk of collapse and a more severe downturn.

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The U.S. Federal Reserve, for instance, appeared to back off its more aggressive rate-hike stance with a quarter-point increase last week.

“That’s raised the bar somewhat for the Bank of Canada to resume tightening,” Nye says.

“As much as there’s some additional fiscal support coming from this budget, I don’t think it’s so significant that the Bank of Canada is going to resume raising interest rates because of this.”

— with files from Global News’ Anne Gaviola

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