![]() ![]() Markets are braced for a 50 bps move next week (and more to come before the year is out). ![]() Not that there was much lingering doubt, but today’s Budget reaffirms that the onus will fall squarely on the Bank of Canada to wrangle inflation.However, once provincial relief measures (likely in the order of $7 bn) and retroactive relief payments for childcare in Ontario for FY22 are folded in, directionally at least, there is likely continued pressure on prices.A one-time $500 payment to Canadians experiencing housing need (through the existing Canada Housing Benefit) is targeted and time-limited, with a relatively modest aggregate impact ($475 mn in FY23). In the near term, the government has largely refrained from launching major new supports to offset inflationary pressures facing many Canadians.The budget however does provide a frank assessment of the longer term challenges Canada faces ahead and that is a start. There are some laudable measures targeting growth potential and affordability over the medium term-from investments supporting innovation, green growth, and housing supply-but they fall short of a comprehensive growth agenda that would change our medium term outlook for Canada just yet.A declining trajectory remains the only fiscal anchor. The level for FY22 is estimated slightly lower than prior expectations at 46.5% of GDP-though mostly driven by a stronger denominator-while gradual improvements are expected over the horizon with the level expected to sit at 41.5 % by FY27. Canada’s federal net debt shows similar modest improvements relative to the last official update (chart 2).Apart from the material improvement in the FY22 deficit (-4.6% of GDP versus the earlier-forecasted -5.8%), the path for deficits looks broadly similar to the last official update in December with shortfalls gradually tapering to -0.3% by FY27 (chart 1).The net budgetary impact shows a $51 bn improvement by FY27 but over half of this ($31 bn) accrues to the recently closed FY22 as higher nominal growth has padded government coffers.Meanwhile, new revenue-raising measures-including the anticipated taxes on banks and insurers and new plans for a government expenditure review-would yield $25.4 bn by FY27. Revenue windfalls since the Fall Update amount to a whopping $85.5 bn by FY27.New spending measures tally $56.6 bn by FY27, ticking off the boxes on many of the Liberals’ election pledges on housing, healthcare, and green investments, along with some under the recent Liberal-NDP pact including a national dental care program (though there is a notable absence of pharmacare).Canada’s Federal 2022–23 Budget unleashes more spending, masked by major revenue windfalls and new revenue-raising measures. ![]()
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