Freeland to keep cap on deficit

After several promises, many wonder how Liberals will pay bills

With Finance Minister Chrystia Freeland promising to keep the federal deficit from ballooning in Tuesday’s federal budget, all eyes will be on the Liberals’ plan to pay for their agenda — and whether that could include new taxes on the wealthy.

During a news conference Thursday, Freeland gave a direct response to a reporter’s question on whether Canadians can expect to see this year’s deficit increase.

“No,” she said.

The finance minister reiterated that her government plans to honour the fiscal guardrails it pledged in the fall, including the promise to keep the federal deficit capped at $40.1 billion for the 2023-24 fiscal year.

But a slew of announcements ahead of the federal budget, including billions for housing and national defence, are raising a big question: How will the Liberals make the math work?

Politically, the Liberal government can’t afford to layer more spending onto the deficit, because of the risk it could keep inflation and interest rates higher for longer.

A slowing economy also means the federal government has less fiscal room to finance new initiatives.

There’s increasing suspicion that the Liberals’ solution to that dilemma will be to create new taxes targeted at corporations and the wealthy.

Freeland has ruled out raising taxes on the middle class in the upcoming federal budget — but won’t say if others are in for the same treatment.

Higher taxes on corporations would spark intense backlash from the business community and financial sector.

The Business Council of Canada has warned against raising corporate tax rates, arguing it would be bad for business investment at a time when the country is struggling with labour productivity.

“It would be pretty bad economic policy in my opinion,” said Robert Asselin, the council’s senior vicepresident of policy and a former budget director for the Liberals.

But Tyler Meredith, a former head of economic strategy and planning for Freeland, said no one should be surprised if the federal government increases taxes, given all of the demands they face to spend more.

Meredith said that even as they demand the budget not include new spending, stakeholders have pushed for more dollars towards defence and corporate subsidies to enable the green transition.

“Well, if you do all those things, that’s a lot of money,” Meredith said, noting the government has other expensive priorities, such as pharmacare and dental care.

“And at some point, if we want at the same time … a credible fiscal track, something has to give. And people shouldn’t be surprised by that.”

Canadians have gotten a decent preview of the federal budget over the last three weeks as Prime Minister Justin Trudeau and his team embarked on an unconventional countrywide tour to sell their policies.

The Liberal government pledged billions of dollars for housing, national defence, a national school food program and loans to expand child-care centres.

And just days ahead of the budget, the Liberals unveiled their full plan to tackle the housing crisis.

On Friday, Trudeau called it “the most comprehensive and ambitious housing plan ever seen in Canada,” promising it will build nearly 3.9 million homes by 2031.

The government’s prebudget strategy has helped the Liberals appear to drive the political agenda again after struggling for months to rebut the Conservatives’ narrative on cost-of-living issues.

Whether it earns the Liberals any favour with a disgruntled electorate is yet to be seen, as the federal Conservatives hold on to a double-digit lead they’ve maintained since the summer.

Tyler Meredith, a former head of economic strategy and planning for Finance Minister Chrystia Freeland, said no one should be surprised if the federal government increases taxes, given all of the demands they face to spend more