A major Canadian bank and a taxpayer advocacy group say Ottawa’s temporary spending restraint still has Canadians facing a future of substantial debt servicing costs.
The RBC analysis of the Fall Economic Statement (FES), penned by Rachel Battaglia and Carrie Freestone, said Finance Minister Chrystia Freeland focused on housing and deferred other spending to minimize inflationary pressures.
“A pleasant surprise, at $40 billion the federal deficit is effectively unchanged from what the government projected in Budget 2023. This will be achieved despite a weaker economic backdrop dampening revenue projections by $600 million and higher public debt charges and net actuarial losses than previously expected. The offset will come from muted program spending growth (0.8%),” the authors wrote.
“The expenditure restraint won’t last long, though. Program spending is slated to re-accelerate by 5.6% and 3.9% in the next two years, respectively. This re-acceleration will lead to higher deficits to the tune of $36 billion over the next four years relative to Budget 2023.”
RBC noted by 2028-29, Ottawa will rake in $68.5 billion more than this year, thanks to its “pollution pricing framework and higher interest revenue from Crown corporations, tax debt and net foreign exchange account holdings.”
The bank found, ironically, that “soaring inflation” helped the government improve its debt-to-GDP ratio over the past two years. Even so, the ratio will rise from 41.7% this year to 42.4% next year, hopefully falling to 39.1% in 2028-29. However, this ratio was just 30.7% in 2018-19.
“Higher public debt charges have resulted in a $2.6 billion increase to Canada’s expenses in FY [fiscal year] 2023-24, with a cumulative $32.9 billion added through FY 2027-28 from Budget 2023. Public debt charges are projected to soar 73% over the next six years. By FY 2028-29, the federal government will spend nearly as much on debt charges ($61 billion) as on health transfers ($63 billion),” RBC warned.
“While we’re glad to see the FY 2023-24 deficit virtually unchanged from the Budget 2023 projection, the deeper deficits in the outer-years of the fiscal plan contradict the ‘slim’ fiscal plan the federal government advertised. Stricter fiscal guardrails would help enhance fiscal flexibility in the event Canada’s economic growth recovery is slower than expected.”
RBC noted that, apart from housing, the federal government only offered $168 million over six years to combat the rising cost of living. Meanwhile, Ottawa designated $850 million in Clean Technology and Clean Electricity Investment Tax Credits from 2024-2029 to use waste biomass to generate heat and electricity.
Also, a new Indigenous Loan Guarantee Program will use Canadian tax dollars to help the Indigenous get equity ownership in major natural resource projects.
In a press release, the Canadian Taxpayers Federation said Ottawa did too little, too late to restrain spending.
“This is the first time this government is starting to recognize reality, but spending is still billions higher than last year and the deficit is bigger,” said Franco Terrazzano, CTF Federal Director. “This budget update proves the government must cut spending because interest charges on the federal debt already cost taxpayers almost $4 billion a month.”
The budget update shows spending will be $488.7 billion this year, up from $473.5 billion last year. The CTF warns the deficit will increase from $35 billion last year to $40 billion this year with no plan to restore balanced budgets.
“Interest charges on the government credit card will cost each Canadian an average of more than $1,000 this year,” Terrazzano said. “Taxpayers are losing out on almost $4 billion every month that can’t be used to improve services or lower taxes because that money is going to the bond fund managers just to cover the government’s debt interest charges.”
The debt will grow to $1.2 trillion by the end of 2023, while interest on the debt will cost $46.5 billion this year. No significant tax relief was introduced in the fiscal update.
“Prime Minister Justin Trudeau isn’t saving Canadians money on their taxes,” Terrazzano said. “Trudeau won’t even do the simple things to save taxpayers money like ending his undemocratic alcohol tax escalator or taking the carbon tax off everyone’s home heating bills.
“The budget update is an admission that the government has a spending problem, but Trudeau still isn’t serious about managing our finances or providing real tax relief.”