David Rosenberg: This anti-competitiveness budget deserves a failing grade and will make the fight against inflation even harder

Canada ’s governing Liberal Party Tuesday announced a 2024 Budget Statement that will see spending increase by more than C$53 billion over the next five years compared to what was announced in the Fall Economic Statement just six months ago.This new expenditure will be partially offset by capital gains tax increases, and still leaves the country’s deficit running near C$40 billion right through the 2026 fiscal year and modestly above the levels that were previously projected.

Not to mention that by lopping on more spending at this time, thereby impeding the Bank from cutting rates more forcefully, what this budget does is make the fiscal deficits that much more structural in nature in the sense that public debt charges are destined to swell from C$47 billion this year to C$57 billion three years out — by which time, interest on the debt will be exceeding the deficit itself by a significant amount.

Of that new C$53 billion in new spending measures, C$19 billion is being allocated to housing initiatives and higher social spending on health and welfare. The defense budget has received nearly C$10 billion, in a move that will build solidarity with Canada’s NATO allies.

Those major revenue and expenditure measures together leave the deficit at 1.3% of GDP in 2024/25 , and 1.2% in 2025/26. With debt service costs of 1.8% of GDP, that puts Canada in a primary surplus at present . In abstract, that’s actually not bad compared to peers , but the point is that the direction of travel is entirely wrong, and an opportunity was missed to put Canada on sounder fiscal footing, but instead we’ve seen a deterioration on the spending side and a heavier tax burden.

Canada Spending Deficit Time Gdp Bank Capital Bank Of Canada David Rosenberg Liberal Party

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