Finance Minister Chrystia Freeland released a budget in Ottawa on Tuesday that deepens Canada’s fiscal deficit as the Trudeau government books $43 billion (US$31.6 billion) in new costs over six years. New spending focuses on bolstering the health-care system, keeping up with the U.S. on clean-technology incentives, and helping low-income Canadians cope with inflation. Debt as a proportion of total output will climb as a result, before resuming its downward trajectory. No return to budgetary balance is forecast.

Key Takeaways

  • The deficit for the fiscal year ending this week grows to $43 billion, or 1.5 per cent of gross domestic product, from the $36.4 billion Freeland forecast in her November budget update. By 2027-28, the government expects a shortfall of $14 billion, instead of the $4.5 billion surplus it previously projected
  • Federal debt as a proportion of GDP will climb to 43.5 per cent in the fiscal year that begins April 1, from 42.5 per cent this year. It’s expected to decline to 42.2 per cent in 2025-26 and 39.9 per cent by the end of the forecast horizon
  • Revenue projections are down $5.7 billion on average per year from November’s budget update, reflecting a weaker economic outlook. Given still-elevated inflation and the impact of lower commodity prices, risks to the projection are tilted to the downside
  • New spending on health transfers to provinces and expanded dental care totals $31.3 billion over six years, while clean-energy incentives will cost $20.9 billion over the forecast horizon. Targeted inflation relief measures total $5.2 billion
  • Prime Minister Justin Trudeau’s government is aiming to support Canada’s energy transition through a mix of investment tax credits and cash handouts. The budget includes a clean electricity tax credit worth $6.3 billion over six years and one for hydrogen projects worth $5.6 billion. Another investment credit for clean manufacturing, intended to be used for producing electric vehicle batteries or processing critical minerals, is worth $4.5 billion

Debt and Taxes

  • The government plans to issue $172 billion in bonds in 2023-24, down 7 per cent from the current fiscal year. It’s tilting its borrowing further to the short end, with two-year bonds accounting for 44 per cent of total issuance
  • Freeland’s budget changes tax rules for financial institutions that receive dividends from Canadian companies. Payouts will be taxed as business income, raising an expected $3.2 billion over five years
  • The Trudeau government is also changing the alternative minimum tax on high earners. It’s boosting the rate to 20.5 per cent from 15 per cent, while quadrupling the income threshold at which the tax might apply. The measure applies primarily to individuals who earn at least $300,000