Set for release, Trudeau's budget focuses on housing affordability and support for young Canadians, amid tax hike speculations
Prime Minister Justin Trudeau's government is preparing to release a budget that aims to address housing affordability and assist young Canadians.
As BNN Bloomberg reports, there is speculation on whether this budget will include tax increases to fund these initiatives. The government plans to spend at least $46bn, which includes $17bn in loans for enhancing housing supply, advancing artificial intelligence, and increasing defense spending.
However, with rising debt costs, Finance Minister Chrystia Freeland has committed to keeping deficits under control.
Robert Asselin, a former Trudeau adviser now with the Business Council of Canada, commented, “They’ll have to raise taxes and push out a bunch of already committed spending from past budgets into future years.”
He added, “What else can a government addicted to spending do when faced with exploding debt service costs?”
Freeland has indicated that the government aims to maintain deficits around $40bn for the current and next two fiscal years, with a plan to cap them near one percent of nominal GDP starting in 2026-2027.
Despite this, debt charges have increased by 36 percent from the previous fiscal year, now totaling $39.2bn.
Trudeau and Freeland have stated they will not raise taxes on the middle class but have not dismissed the possibility of new taxes or increased levies on wealthy Canadians or businesses.
For instance, in 2022, the government implemented a one-time 15 percent windfall tax on banks’ earnings exceeding $1bn.
The government has seen an increase in corporate taxes, which accounted for 21 percent of total revenues in the 2022-2023 fiscal year—the highest proportion on record since the late 1960s.
A better-than-expected economy is likely to bolster tax revenues further, with the Bank of Canada recently upgrading its real GDP growth forecast to 1.5 percent for 2024.
Freeland has expressed that the fiscal strategy will not add to inflationary pressures, a view supported by most economists in a recent Bloomberg survey.
Nonetheless, many provinces have deepened their deficits this year.
Rebekah Young, an economist with the Bank of Nova Scotia, noted, “Near-term demand measures in the budget are likely to be modest but the cumulative impact of government spending across all levels over time have made the Bank of Canada’s job all the more challenging.”
Trudeau, who came into power in 2015 with a promise of running modest deficits to invest in public infrastructure, has seen these deficits continue, reaching record levels during the Covid-19 pandemic.
As spending remained high post-recovery, concerns have grown about the potential for further deterioration in the debt-to-GDP ratio if faced with an economic shock.
Rachel Battaglia, an economist with Royal Bank of Canada, warned that straying from fiscal budget anchors could harm the government's credibility and increase borrowing costs, potentially impacting bond investors.
She emphasized, “Any rise in the federal government’s funding costs will trickle down to businesses and households.”
Despite these challenges, Canada's federal government debt is still rated AAA by most rating agencies, although it faces a higher risk of downgrade compared to other top-rated countries like Germany, Australia, and Switzerland.
