The 2023 federal budget saw the Liberals hike up their spending plans and devote loads of attention to affordability concerns, but experts are unconvinced the proposals will make a dent on the funds of on a regular basis Canadians, nor the country’s economic trajectory.
Economists had told Global News that Finance Minister Chrystia Freeland was in a tricky spot heading into the 2023 budget, the second of the Liberals’ current minority mandate.
Canadians have struggled to make ends meet for months amid cooling but still-high inflation and rapidly rising rates of interest. Yet with a slowing economy and possible recession on the horizon, the federal government was also tasked with keeping some funds in reserve to avoid overspending and re-stimulating inflation.
Freeland said Tuesday that the 2023 budget shows “fiscal restraint” while also delivering “targeted inflation relief to those that need it most.”
But Pamela George, a financial literacy counsellor who works with women, says the 2023 spending plan is “subpar” from an affordability lens.
“It’s nothing to jot down home about. I’m not shouting and celebrating anything,” says the Ottawa-based founding father of Sand Dollar Financial Literacy Counselling.
Measures within the budget just like the so-called grocery rebate, which tops up the GST rebate with a median of $467 to a family of 4 and $234 to a single Canadian, don’t go far enough to offset rapid rises in the fee of food, mortgage rates and rent that George says her clients are struggling to maintain pace with.
While she acknowledges that “every dollar counts,” she tells Global News that the rebate won’t help Canadians “in a way that’s meaningful.”
Alongside the grocery rebate within the budget were pledges to crack down on “junk fees” — extra costs tacked onto concert tickets, airfare or food deliveries before checkout — in addition to proposals for tax changes to assist low-income households and to introduce a code of conduct to direct lenders to assist Canadians with ballooning mortgage costs.
But George says she hoped to see more “solid stuff” within the budget and fewer guarantees for changes to return.
“After I hear things like, ‘we’re going to do that,’ or ‘we’re looking into this,’ I just feel it’s stalling,” she says.
Global News asked Canadians to jot down in with their impressions of whether the 2023 budget would help with their affordability challenges.
Amongst responses received via email, many expressed a typical thread of disappointment in a scarcity of recent support for seniors and people living with disabilities.
George says that amongst her senior clients, there was little optimism that federal support would rescue them from their affordability concerns. She says seniors are more often finding ways to spice up their incomes themselves, for instance by renting out a room of their homes or getting regular boosts from relations.
“Seniors have needed to resort to finding a strategy to make things work for themselves,” she says.
The budget also sought to crack down on predatory lending and payday loans, limiting how high of rates of interest these services can offer and capping charges at $14 per $100 borrowed.
Much of George’s work involves helping clients escape the cycle of debt created after they took out a payday loan in a time of desperation, corresponding to the beginning of the COVID-19 pandemic. She doesn’t think the federal government’s technique to limit future vulnerabilities on this space will help her clients who’ve been stuck attempting to repay loans with exorbitant rates of interest for years.
“I actually have clients with payday loans and this isn’t any light at the tip of the tunnel for them,” she says.
Alicia MacDonald, an economist with Deloitte Canada, says that outside of the grocery rebate and just a few “small initiatives,” the budget was lacking in affordability measures, despite how widely the concerns were discussed heading into the budget.
“Given the inflationary pressures that we now have been experiencing, it will have been nice to see a bit more targeted measures on the affordability side,” she says.
The federal government was under heavy scrutiny heading into the budget to avoid stimulating the economy by giving an excessive amount of direct support to Canadians and inadvertently driving spending and inflation higher all once more.
Yet the federal government had spending priorities to fulfill tied to its supply-and-confidence agreement with the Recent Democrats. NDP Leader Jagmeet Singh said he was “proud” the party had “forced” the Liberals to the table on measures corresponding to expanding dental care.
Ottawa’s 2023 budget projects more deficits coming over the following five years, compared with the fiscal position outlined in the autumn economic statement that saw the federal government’s books returning to balance in the identical timeframe.
“We did see federal spending increase to the tune of billions of dollars a 12 months over the following five years. And we all know that extra spending will stoke demand within the economy. And that’s where the priority over inflation suits in,” MacDonald says.
But despite the upper spending plans, MacDonald doesn’t think the 2023 budget will find yourself “significantly” fuelling inflation.
“The federal government did manage to string the needle and walk that advantageous line between introducing some essential policy initiatives while also being mindful of overstimulating an economy that’s already in excess demand,” she says.
The federal government’s forecast sees inflation returning to 3 per cent within the third quarter of this 12 months and to 2 per cent within the second quarter of 2024. That’s largely “in line” with Deloitte’s own expectations, MacDonald said.
Craig Alexander, president of Alexander Economic Views, tells Global News that while measures just like the GST top-up could be “inflationary,” the modest relief for low-income Canadians who’re hit hardest by inflation makes each economic and political sense for the Liberals.
But that doesn’t mean that higher spending won’t weigh on the federal government’s books, he notes.
“The Trudeau government needed to walk a really difficult line when it comes to delivering a budget that Canadians will support, but one which will even not cause higher inflation,” Alexander says.
“And I believe they’ve done that, but they’ve done it in a way that ultimately also signifies that we’re going to be paying quite a bit more on government debt due to amount the federal government’s going to need to borrow.”
One party expected to be watching the 2023 budget rigorously was the Bank of Canada, which bakes government spending plans into its forecasts for inflation, and by extension, its path for rates of interest. The central bank’s rate hikes are on a conditional pause after greater than a 12 months of aggressive increases, with the following decision and revised inflation forecasts coming on April 12.
RBC senior economist Josh Nye tells Global News that the Bank of Canada had recently signalled that higher than expected government spending would translate to more “domestic demand,” which he interprets as code for “inflationary pressure.”
The Liberal government’s COVID-19 supports likely stretched too long, Nye says, and wound up fuelling Canada’s currently overheated economy and decades-high inflation.
“That failure to right-size fiscal policy coming out of the pandemic did make the Bank of Canada’s job tougher and was probably one in every of the explanations that that they had to boost rates of interest as aggressively as they did over the past 12 months,” he says.
In relation to the 2023 budget, Nye says he’s undecided the federal government stuck to its messaging that it will avoid overstimulating the economy once more.
“The finance minister tried to position this as a fiscally prudent budget. But I mean, once you take a look at the size of the brand new spending and the dimensions of deficits which can be expected in the following several years, this can be a big budget,” he says.
But will the federal government’s 2023 spending plans alone be enough to bring the Bank of Canada off the sidelines and lead to a different rate hike in April? Economists who spoke to Global News don’t think so.
Among the many aspects driving down price pressures in recent months is an overall slowing trend within the economy, MacDonald says, and a forecast recession is predicted to take much more steam out of inflation.
“This recession is predicted to be quite short and mild in comparison with historical recessions. It’ll work to bring inflation down, which can allow the Bank of Canada to start reducing rates of interest,” she says.
Even when the federal government spending plans puts pressure on the Bank of Canada to boost rates of interest higher, uncertainty beyond the country’s borders are concurrently pushing central banks to avoid overtightening, Nye says.
Recent turmoil in the worldwide banking sector following the collapse of Silicon Valley Bank in america has raised concerns that rising borrowing costs could put some financial institutions vulnerable to collapse and a more severe downturn.
The U.S. Federal Reserve, for example, appeared to back off its more aggressive rate-hike stance with a quarter-point increase last week.
“That’s raised the bar somewhat for the Bank of Canada to resume tightening,” Nye says.
“As much as there’s some additional fiscal support coming from this budget, I don’t think it’s so significant that the Bank of Canada goes to resume raising rates of interest for this reason.”
— with files from Global News’ Anne Gaviola