The Canadian federal government is embarking on their own new fiscal strategy. This is accompanied by its first autumn budget, delivered by new Finance Minister François-Philippe Champagne. This budget is a significant break from our past practices. Our goal would be to start a cross government spending review exercise that would find 15 percent of savings across the board within three years. As the country grapples with economic pressures, including a trade war with the United States, this budget is crucial for shaping Canada’s financial landscape.
Champagne underscored the importance of that anticipated fall budget. He continued, noting that it allows provinces and other actors to have a clearer idea of federal policies before they have to set their own budgets. This proactive approach further ensures that federal and provincial fiscal strategies are aligned. It allows the provinces to line up their own much more locally driven budgetary cycles.
Now with the fall economic statement, that fiscal year-deficit has been projected at $42.2 billion. This has encouraged federal Conservatives to call on the government to limit this year’s deficit to no more than $42 billion. Champagne’s government has committed to balancing the operating budget within three years. The increasing stack of red ink has many worried about skyrocketing interest payments eating up federal dollars that could otherwise support vital services.
Many key Canadian industries are facing acute pressure from the deepening, nearly year-long trade war with the United States. At the same time, this dangerous circumstance increases the need for a new economic strategy. Debt is rising at a rate that exceeds the growth of Canada’s economy. If this trend continues, Ottawa may one day have serious trouble making its interest payments. Federal experts have been ringing the alarm on this perilous state. In doing so, they claim that the accumulated legacy of past deficits should prompt governments to reconsider their fiscal approaches.
Champagne and Mark Carney, the governor of the Bank of England and a former governor of the Bank of Canada, have assured Canadians that they possess fiscal anchors to guide their decisions. They know that infrastructure spending can be flexible every year according to most urgent needs. Controlling operating costs like salaries and transfers to Canadians is more difficult. This balancing act is a delicate one and should be considered as the federal government continues to chart its path forward.
Speaking to the deep political ramifications of this budget, Sahir Khan, our fiscal policy expert, told us that He remarked, “It’s probably the biggest political event of the year… because in this case, it outlines the government’s direction for the upcoming year and beyond.” For Canada to succeed in transforming its economy, it needs to make “generational” investments. This policy shift will help mitigate the country’s dangerous overdependence on the United States.
“As long as that wedge is getting bigger, and your economy is growing just even a little bit faster than your spending line, you’re going to borrow less every year… and eventually you’ll pay down that debt and you’ll be fiscally sustainable.” – Sahir Khan
This budget introduced this fall marks a major break from that tradition. For decades, spring was the traditional season for federal budgets. Champagne stresses the importance of high stakes, transformative investment in the face of climate change. This budget recognizes the new economic reality and focuses on addressing long-term challenges such as deficits and debt control.
Canada is facing a rare set of economic challenges. This fall budget is a politically difficult time for the minority Liberal government. Its fiscal decisions will have deep implications for the next several years, affecting its domestic policy as well as long-term international relations.
