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Federal budget

Federal Budget 2023 - Prudence Is in the Eye of the Beholder

March 28, 2023
Jimmy Jean, Vice-President, Chief Economist and Strategist
Randall Bartlett, Senior Director of Canadian Economics
  • As expected in our Federal Budget 2023 preview note, the Government of Canada plans to run larger deficits than anticipated in the Fall Economic Statement 2022 (FES 2022). In the 2023-24 fiscal year, the $43.0B deficit is now expected to be $6.6B greater than that published back in November of last year. After that, deficits are projected to be larger by $12.5B on average annually. Indeed, the federal government no longer expects to run a surplus at any point over the fiscal planning horizon. 
  • The larger deficits are entirely the result of more elevated spending. Program expenses are expected to be $39B higher over the coming five fiscal years than projected in the FES 2022. Most of this is related to measures to support the energy transition ($21B in total over 5 years). Beyond the $22B in new health care spending announced in February, other new measures were more modest, with a focus on improving affordability for vulnerable households. 
  • On the revenue side, the lower profile due to a weaker economic outlook is largely offset by tax hikes on high-income earners, financial institutions, and Canadian multinationals. Without these changes, revenues would have been much lower over the forecast horizon, to the tune of more than $11.6B over six years. That said, we believe the economic outlook in Budget 2023 is a reasonable starting point for fiscal planning, although risks remain tilted to the downside.
  • Taken together, debt-to-GDP ratio is expected to increase from an estimated 42.4% in the 2022-23 fiscal year to a peak of 43.5% in 2023-24. After that, debt as a share of the economy is expected to track lower. This is likely to leave Canada the envy of the G7 from a net debt perspective, although gross debt should remain middle of the pack.