Freeland’s mini-budget warns of recession

Fiscal update forecasts first surplus on the horizon, unveils plan to eliminate student loan interest

The fiscal update suggests a federal budgetary surplus is on the distant horizon for the first time since the Liberals came to power seven years ago, but that picture is clouded by a potential recession and promises to spend a lot more to support Canada’s transition to a clean and green economy.

The Liberals would also need to fight another election before getting there.

The forecast came in the fall economic statement that Finance Minister Chrystia Freeland tabled in the House of Commons on Thursday, which includes new measures to spur clean energy investment and improve affordability for Canadians struggling to keep up with the rising cost of living.

Overall, the mini-budget proposes relatively modest new spending amid growing political pressure to demonstrate fiscal restraint.

The $30.6 billion promised over the years leading up to 2027-28 includes money set aside for previously announced measures such as temporarily doubling the GST credit, topping up the housing benefit and a dental-care benefit.

The update also focused on matching clean energy investments and tax incentives made recently in the United States through its Inflation Reduction Act.

It also pledged some more affordability measures, such as permanently eliminating federal interest charges on student loans and revamping the Canada Workers Benefit so that people who qualified for it in the previous year can receive an advance instead of waiting to file their tax returns.

Freeland reiterated the government’s commitment to staying out of the way of the central bank’s efforts to battle rising prices. “As the Bank of Canada fights inflation, we will not make its job harder,” she said. “We are compassionate and we are also responsible.”

The Liberals are also proposing a two per cent tax on corporate stock buybacks in an effort to encourage companies to invest in their domestic operations and workers.

It slots an additional $1 billion in disaster relief in the wake of posttropical storm Fiona.

The forecast also provides a downside scenario in which the economy would enter a recession next year. For the current fiscal year, the mid-year budget update is forecasting a $36.4-billion deficit, which is about $16 billion lower than anticipated in the spring budget thanks to high inflation and a strong economic recovery boosting government revenue.

The fiscal update says the federal debt as a share of GDP is 42.3 per cent in fiscal 2022-23 and projected to decline until reaching 37.3 per cent in fiscal 2027-28. In the longer run, the government is forecasting a budget surplus of $4.5 billion during the 2027-28 fiscal year.

‘‘ As the Bank of Canada fights inflation, we will not make its job harder.

CHRYSTIA FREELAND FINANCE MINISTER