Federal Budget 2024 Preview: At Risk of Losing Its Anchors, Federal Fiscal Credibility May Soon Be Set Adrift

Spring is in the air, and with it the promise of warmer weather and government budgets. But a lot has changed since the Government of Canada tabled its prior fiscal plan in November 2023.

The federal government is tracking a larger deficit in the 2023–24 fiscal year than was projected in the FES 2023. In particular, the outsized pace of spending is highly concentrated in Direct Program Expenses (DPE)—the expenditure category where the federal government hoped to find the greatest savings and over which it has the most direct influence.

The resulting higher path of DPE over the forecast should more than offset the benefit from our improved economic outlook, leading to larger deficits. Add to that the announcement of a new national pharmacare program and a possible increase in military spending, and suddenly the “fiscal anchors” announced in the FES 2023 look much harder to achieve.

Despite this, the Government of Canada is in an enviable fiscal position internationally. That’s because it’s had the good fortune of standing on the shoulders of fiscal giants that came before. But it can’t take that for granted. The federal government would be wise to fund any new measures from existing planned spending while looking for opportunities to generate permanent savings. At the same time, focus should be shifted to reducing barriers to business investment, thereby better supporting gains in productivity and the living standards of Canadians.