Desjardins warns Canada's deficit may hit $47bn without cuts or new revenue
Canada’s ability to meet its deficit targets is in jeopardy, with Desjardins issuing a warning that without significant spending reductions or new revenue streams, the country is likely to face a $47bn budget shortfall by the end of the fiscal year on March 31, BNN Bloomberg reports.
This projection casts doubt on Finance Minister Chrystia Freeland’s commitment to maintaining the budget deficit at approximately $40bn annually through 2026.
Desjardins’ senior director of Canadian economics, Randall Bartlett, expressed skepticism about meeting these targets without fiscal adjustments.
“I think it’s going to be an exercise in creative accounting,” he remarked, emphasizing the need for either spending cuts or revenue increases. With economic growth slowing, analysts and economists are raising concerns about the likelihood of increasing deficits absent policy changes.
Business groups fear Freeland might raise corporate taxes in the upcoming April 16 budget announcement, which Bartlett believes could further strain the government’s business relations.
He argues that such an approach would be challenging to implement and detrimental to investment stability. Instead, Desjardins anticipates the government might reveal “unexpected savings” or consider asset sales to mitigate the deficit.
Additional fiscal pressures are expected from unaccounted-for expenditures, such as a new program for diabetes medication and birth control coverage and potential hikes in military spending.
Bartlett warns that ongoing deficits for operational expenses could jeopardize Canada’s fiscal reputation and triple-A credit rating. However, he also notes Canada’s comparatively favorable position among advanced economies, referring to it as “one of the cleanest dirty shirts in the closet.”
Meanwhile, Toronto Dominion Bank economists highlight that despite the trend toward a more profound fiscal deficit, stronger-than-anticipated economic performance early in 2024 might boost revenues.
They remain optimistic that the government can address fiscal discrepancies, predicting a $40bn deficit for the 2023-24 fiscal year.
