Finance Minister Chrystia Freeland on Tuesday would not say whether the Liberals kept a pledge to cap the budget deficit at $40.1 billion in the previous fiscal year, but said the upcoming fall economic statement will show Ottawa’s balance sheet remains on a “sustainable” track.
When Freeland tabled the 2024 federal budget in the House of Commons in April, she highlighted “three very specific fiscal guideposts” that were underpinning “a responsible economic plan.”
Those guideposts were capping the federal deficit at $40.1 billion and maintaining both a declining debt-to-GDP ratio and a deficit-to-GDP ratio.
“In this budget, each one of these objectives is being met, as is our fiscal anchor — a declining federal debt-to-GDP ratio over the medium term,” she said while tabling the budget.
Freeland told Global National’s Dawna Friesen after tabling the budget in April that credit rating agencies would be looking at those three guideposts to gauge whether Ottawa was, as she called it, “charting a responsible path.”
“The ratings agencies said they would be looking at those to see whether Canada was sticking to that path. We have hit every single one of those markers,” she said at the time.
When Freeland was asked on Monday about her pledge to cap the annual deficit at $40.1 billion in the previous fiscal year, she would not answer directly and said she “chose (her) words with care.”
Instead, she touted the federal debt-to-GDP ratio as the marker of sustainability.
“Our fiscal anchor is the debt-to-GDP ratio and a declining debt-to-GDP ratio. And that is so critical because that is really a way of saying our public finances are sustainable,” Freeland told reporters.
“If your debt is declining as a share of the economy, by definition, your fiscal position is sustainable.”
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In Budget 2024, the Liberals projected the debt-to-GDP would come in at 42.1 per cent for fiscal 2023-24 and decline over the remaining years in the forecast horizon.
Canada’s fiscal watchdog, the parliamentary budget officer, also charged back in October that the Liberals likely surpassed the $40.1-billion deficit cap.
Some economists have told Global News that spending commitments announced since the 2024 federal budget have likely put pressure on Ottawa’s coffers heading into the fall economic statement.
Randall Bartlett, senior director of Canadian economics at Desjardins, told Global News on Monday that he expects the deficit for the last fiscal year ballooned to around $44 billion, slightly below the PBO’s call for $46.8 billion.
While Bartlett said the Canadian balance sheets are still in relatively favourable position compared to other G7 nations, he warned about the dangerous of blowing past self-imposed guideposts.
He said that fiscal anchors like capping the deficit are important to maintain because they maintain Canada’s “credibility” in financial markets. If the federal debt is going to be higher than expected, that can drive up borrowing costs for not only Ottawa, but for businesses and Canadians, too, he said.
“There are negative knock-on consequences for the broader economy,” Bartlett said.
“Ultimately, you’re adrift when you don’t have anchors.”
Economic picture clouded heading into fiscal update
The fiscal update comes later than in previous years, with Freeland blaming an ongoing Conservative filibuster stymying the usual business of the House of Commons through much of the fall sitting.
Bartlett said there’s been a slew of developments this fall that he expects Ottawa wanted to wait to see how they could impact the fiscal forecast before tabling a fall economic statement. In addition to announcements like the GST holiday and plans to curb immigration growth in future years, the outcome of the United States election is shaping up to have major implications for the Canadian economy.
U.S. president-elect Donald Trump has threatened to impose blanket tariffs on Canadian and Mexican goods entering the country, prompting a flood of concern from Canadian politicians and industry players about the impact of such a move from Canada’s largest trading partner.
Freeland said Monday that the fall economic statement will “take … into account” the prospect of U.S. tariffs.
While the Bank of Canada has started to lower its benchmark interest rate since the spring, Canadian economic results have largely underwhelmed, with some economists not calling for a meaningful rebound to begin until the second half of 2025.
Measures like the two-month GST holiday could provide a short-term boost to consumer spending and GDP by extension, but Bartlett argued that those measures are “just a sugar high that’s quickly going to fade.”
Bartlett said that the economic developments since the 2024 budget have largely put Canada in a “weaker position” than Ottawa had forecast, putting upward pressure on the government’s fiscal standing.
“All of those things pose huge challenges, I think, around reining in deficits and keeping the debt-to-GDP ratio on a falling track.”
— with files from Global News’s David Akin
© 2024 Global News, a division of Corus Entertainment Inc.
