Liberals to unveil budget on Tuesday

OTTAWA – Canadian Finance Minister Chrystia Freeland will have to find ways to amp up savings or raise taxes when she delivers the budget on Tuesday, as new heavy spending plans in the run-up further risks weakening government finances, economists say.

In the last two weeks, Prime Minister Justin Trudeau's Liberal government has unveiled several proposals as part of the budget, funnelling billions of dollars primarily into housing but also into defense and healthcare.

But it has yet to elaborate on how these plans will be funded and what impact it will have on its fiscal anchors, and economists say even before the last two weeks' announcements, the government was already on track to overshoot its deficit target.

In last year's Fall Economic Statement (FES), the government's new fiscal goals aimed to cap the fiscal 2023-24 budget deficit at C$40.1 billion ($29.12 billion), or about 1.4 per cent of GDP.

Randall Bartlett, senior director of Canadian Economics with Desjardins Group, estimates the deficit in the fiscal year ended March 31 could be around C$47 billion, led by government expenses.

"We are committed to adhering to those guideposts," Freeland told reporters on Thursday at the sidelines of a housing-related announcement, when asked about the impact of recent on the fiscal anchors.

"We recognize that Canada today needs our government to invest... And that requires the federal government to step up," she added.

Canada is facing a housing affordability crisis due in part to a lack of supply, especially as it welcomes record numbers of migrants to meet labour needs. The opposition Conservative Party has attacked the Liberal government for the situation which has dented Trudeau's popularity, opinion polls show. The next election is due by September 2025.

On Friday, the government announced a new housing plan under which it pledged to build 3.9 million homes by 2031.

The budget will be presented to the parliament on Tuesday at 5 p.m. (Atlantic Time).

Economists Douglas Porter and Robert Kavcic from BMO Capital Markets wrote last week that Ottawa will be "running very close to the line on some of those (fiscal) goals," forcing the government to likely introduce new taxes, that are unpopular.

"Raising taxes will be an awful idea in an inflationary environment," said Robert Asselin, senior vice president, of policy at Business Council of Canada.

It would result in less business investments that are badly needed to improve Canada's productivity, he said.

To be sure, government revenues have increased by 3 per cent for the first 10 months of the year and its sovereign debt is among the best rated in the world.