Late last week, the federal government released a fall economic statement, promoted as a “mini-budget”.
Why? One can assume it was a clever play on words, suggesting the fiscal announcement was small when in reality it proposed to significantly increase more deficit spending.
First some context. You may recall Prime Minister Justin Trudeau was elected in 2015 with a promise to run several “small” deficits before he made what he called a “cast in stone” promise to return to a balanced budget in 2019.
The promises at that time were “small deficits” of $ 9.9 billion in 2016, $9.5 billion in 2017, $5.7 billion in 2018 and a return to a $1 billion surplus in 2019.
How did those promises turn out? They didn't. In reality the size of these deficits were much larger, with a $17.8 billion deficit in 2016, $19 billion deficit in 2017, $14 billion deficit in 2018 and a $39.4 billion deficit in 2019. Keep in mind that all of that was before the pandemic.
Fast forward to what the government announced in the “mini-budget” last week—a deficit this year of $36.4 billion, followed by a $30.6 billion deficit in 2023, another $25.4 billion deficit in 2024, with a further deficit of $14.5 billion in 2025 that will lower to a $3.4 billion deficit in 2026 and finally a $4.5 billion surplus in 2027.
Aside from the obvious that the government has never established itself as being able to come even close to meeting the fiscal promises it makes, there is another challenge. Once again we are in a situation where these are all deficit forecasts, meaning the actual deficits could be much higher, as has been the case in the past with this government.
Even within the “mini-budget,” the government includes a “downside scenario” in which the federal deficit this year could be as high as $49.1 billion, followed by $52.4 billion in 2023 and $42.3 billion in 2024. In this downside scenario, instead of a small surplus in 2027, there would still be a deficit of $8.3 billion.
There is another more alarming trend. As prices rise with inflation, so do the taxes on all those goods and services that now cost more. That means the government actually receives more tax money from struggling consumers trying to pay their bills.
As an example of this, the actual federal government revenue received was $19 billion higher in this “mini-budget” than was forecast in last April’s (actual) budget. In other words, at a time when the federal government is receiving increased tax revenues at your expense—due to higher prices—it is taking the extra revenue and still spending it while creating deficits significantly larger than what they campaigned on back in 2015.
As I mentioned last week, Desjardins (from Quebec) is now forecasting Canada’s debt servicing costs will hit $49.8 billion next year, and we could be spending more money servicing debt than the total of the Canada Health Transfer for 2022/23, expected to be $45.2 billion.
My question this week:
Did you find the “mini-budget” to be credible?
I can be reached at [email protected] or call toll free 1-800-665-8711
This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.