Liberals pivot to prudence and use windfall to reduce deficit

Canadian Finance Minister Chrystia Freeland released a more prudent budget than expected, keeping new spending in check and using a revenue windfall to help narrow deficits to near zero within five years.

Canadian Finance Minister Chrystia Freeland released a more prudent budget than expected, keeping new spending in check and using a revenue windfall to help narrow deficits to near zero within five years.

The net cost of new measures in Thursday’s budget -- including revenue-raising steps -- are estimated at $31.2 billion (US$24.8 billion) over six years; some economists expected that number would be closer to $100 billion. Cumulative deficits through 2027 will be $50 billion lower than forecast in a December fiscal update, with revenue exceeding projections by about $90 billion over that time.

The budget is a recognition by the Liberal government that more fiscal caution is needed given rising inflation and global uncertainties that are clouding the economic outlook. It also marks a pivot for Prime Minister Justin Trudeau, who has faced heavy criticism over spending given federal debt levels have doubled since he came to power in 2015.

“Canada has a proud tradition of fiscal responsibility,” Freeland said in the prepared text of her speech to parliament. “It is my duty to maintain it -- and I will.”

Economists were anticipating the government would spend nearly all its additional revenue, expectations that were stoked by a power-sharing deal with the left-leaning New Democratic Party. Yet the pact may have actually given Trudeau’s government room to hold back, given it eliminated the likelihood of another election any time soon.

New spending appears to be just over $60 billion, while revenue from new taxes and repofiling of past spending will total about $30 billion.