(Hamilton) The warnings are piling up, all pointing in the same direction: the Trudeau administration will have to slow down its spending stance if it is not to stoke inflationary pressures and force the Bank of Canada to tighten monetary policy.
Posted 2:24pm Updated 4:54pm
Worse, the financial projections contained in Treasury Secretary Chrystia Freeland’s November economic statement are already proving to be overly optimistic, according to a recent study. As a result, the risks of a recession and persistently high interest rates for the federal government’s financial leeway are underestimated.
After the Business Council of Canada released an analysis of the risks to the economy on Monday, three experts on Tuesday underscored the need for caution in 2023 as severe turmoil looms.
These three experts — Carolyn Wilkins, former First Deputy Governor of the Bank of Canada and Senior Fellow at the Griswold Center for Economic Policy Studies at Princeton University, Kevin Milligan, Professor of Economics at the University of British Columbia, and Anil Arora, Chief Statistician at Statistics Canada – updated the Trudeau government ministers, who were gathered in Hamilton for a three-day cabinet retreat, on the current state of Canada’s economy.
The Trudeau administration is under intense provincial pressure to increase provincial health transfers to $28 billion a year. He is also under pressure from the New Democratic Party, with which an agreement was reached last year that would ensure the political survival of the Liberals in the House of Commons until June 2025. The NDP calls for investment in the next budget to establish a national pharmacare program. among other things.
But the warning lights on the dashboard urge tax caution, say experts. Since taking office in 2015, the Trudeau government has never presented a balanced budget.
“We have to expect that the economy will slow down significantly. We can expect the unemployment rate to increase both here in Canada and in other jurisdictions such as the United States, Europe and the United Kingdom,” Carolyn Wilkins said in a news conference after meeting with the bureau.
PHOTO NICK IWANYSHYN, THE CANADIAN PRESS
Carolyn Wilkins, Kevin Milligan and Anil Arora
Ms Wilkins pointed out that the impact of the Bank of Canada’s 2022 mandated rate hike to curb inflation is only just beginning to be felt. She said if more increases are needed, Canadians could be hit hard because of the Canadian people’s heavy debt burden.
Most economists also expect the Bank of Canada to announce another interest rate hike by 0.25% to 4.50% on Wednesday.
For his part, Kevin Milligan agreed that there were “serious risks”. Interest rates, inflation and the expected slowdown in the economy will have a major impact on federal government revenue, he said.
Asked about this, Minister Freeland acknowledged that there was “a lot of uncertainty” and “volatility” affecting the global economy. But she said Canada will be able to weather this turbulent period from a position of strength. She added that when planning the next budget, budgetary prudence will be the rule of thumb.
“This is the formula that every government should follow when preparing a budget. When there is less fiscal space, there is less to do,” she said, adding that the Trudeau government had enforced fiscal discipline in the most recent budget and economic statement.
“Last year we had the smallest deficit of any G7 country and we also had the smallest debt to GDP ratio in the G7. We did this because we understood that inflation was high and we shouldn’t add fuel to the fire, lest we complicate the Bank of Canada’s work. »
In their joint report released Monday, the Business Council of Canada and Bennett Jones firm said budget projections presented in the most recent federal budget and fall economic report were overly optimistic.
Authored by former Bank of Canada Governor David Dodge and former Liberal fiscal policy adviser Robert Asselin, the report concluded the government’s forecasts were based on “plausible but optimistic” economic and interest rates, which are unlikely to materialize .
The authors claimed that there was a “high probability of a deeper recession” this year and that liberal promises would cost much more than expected across all sectors – be it funding healthcare, the national defense government, infrastructure improvements or combat against climate change.
With the Canadian Press