Federal budget will be a 'back to basics' document responding to the chaos in Europe, sources say

The upcoming federal budget — likely to be unveiled in the first week of April — will be a "back to basics" document that accounts for new economic and geopolitical uncertainties stemming from the crisis in Ukraine, senior government sources say.

"It will be different from last year's COVID measures budget. We're not in that space anymore. What are the core things government can and should be doing?" said one senior government official who spoke to CBC News on the condition they not be named because they are not authorized to speak publicly about the budget.

Describing this year's budget as "prudent," the official said that unless something significant changes, it would be surprising to see any of the COVID benefits and aid programs continue beyond their existing expiration dates.

But with global supply chain challenges and inflationary pressures posing a threat even before Russia invaded Ukraine, one source told CBC News that finance officials working on the budget have been using words like "uncertainty" and "volatility" more than usual.

The impact on the global economy of a new war in Europe — with its collateral refugee crisis, unprecedented sanctions on Russia and soaring oil prices — is certain to weigh on Canada's bottom line as well.

"On budget day, you'll see a sincere acknowledgement of the uncertainty we face. We're being practical. We're not going to sugarcoat it," said the senior government official.

That means the budget's projections for revenue, growth, deficits and inflation will be best estimates that come with a caveat: it could all change if circumstances change.

The budget will account for recent new spending on humanitarian and military aid for Ukraine, although some of that money came from existing departmental budgets. Still, it amounts to hundreds of millions of dollars.

There has been a great deal of speculation about whether the crisis in Ukraine will prompt Ottawa to boost defence spending — in recognition of the fact that Canada's capacity to defend its own borders is not all it should be.

Last week, while she was in Germany — a country with a decades-old tradition of non-interventionist foreign policy that recently announced a massive increase in military spending — Deputy Prime Minister and Finance Minister Chrystia Freeland hinted strongly that Canada's own military spending is being re-evaluated.

"One of the reasons that I am here is because the geopolitical situation has changed tremendously and it is very important and valuable for me as we finalize the budget. Certainly, defence spending is something that we have to look at carefully," she said to reporters in Berlin, adding that Russia's invasion is a pivotal moment for both the world's security and its economies.

Experts say it would take tens of billions of dollars in new money to push Canada's military spending to NATO's target of two per cent of GDP.

Still, another senior government source said that the Liberal government's overall priorities remain the same.

"We've got two pillars. One is the goal of growth. The second is ensuring Canadians can access that growth," he said.