Canadian Prime Minister Justin Trudeau’s government https://www.reuters.com/markets/us/floods-top-mind-canadian-pm-trudeau-outlines-priorities-parliament-2021-11-23 will outline new fiscal and economic forecasts in a document to be released on Tuesday as inflation surges and some business groups and opposition politicians call for more spending restraint.
The so-called fall economic update (FES) will be released at 4 p.m. ET (2100 GMT) and will include some new spending as well. The FES will be “limited in scope https://www.reuters.com/markets/us/exclusive-canadas-fall-fiscal-update-be-limited-scope-sources-2021-12-02″ in terms of expenditure, a source told Reuters last week.
“We’re going to be sharing not just where we are as an economy in our recovery, but also how we’re going to continue to help people into the future,” Trudeau told reporters on Tuesday, referring to the FES.
The Liberal prime minister pledged C$78 billion ($61 billion) in new investment over five years to foster Canada‘s economic rebound from the coronavirus pandemic during the campaign ahead of his September re-election.
“My reading of the tea leaves would be: Even if the fiscal statement is light, it doesn’t mean that the upcoming budget will be,” said Tony Stillo, director of Canada economics at Oxford Economics.
Trudeau’s government is expected to release its 2022-23 fiscal-year budget during the first part of next year. This fiscal year’s budget included C$101 billion in investments over three years.
On Monday, the government said it would set aside C$40 billion ($31.1 billion) in the FES to compensate Indigenous children https://www.reuters.com/world/americas/canada-setting-aside-c40-billion-compensate-indigenous-children-harm-2021-12-13 who suffered discrimination in foster care, and will start paying out once a protracted lawsuit is settled.
PANDEMIC SUPPORT
Business lobbies and the opposition Conservative Party have urged the government to scale back spending after inflation hit an 18-year high. This is also because the costs to service the country’s debt are expected to start rising next year.
The Bank of Canada left its key overnight interest rate at 0.25% last week, but reiterated https://www.reuters.com/markets/rates-bonds/bank-canada-leaves-key-rate-unchanged-sticks-guidance-hike-timing-2021-12-08 that economic slack would be absorbed in the “middle quarters” of 2022, setting the stage for a first rate hike as soon as April.
Pandemic-related supports for businesses and individuals produced the highest deficit since World War Two last year. Already in October, Finance Minister Chrystia Freeland indicated Canada would significantly scale back spending on COVID-19 support programs now that more than 85% of the eligible population was vaccinated against the virus.
In April, Freeland said debt as a percentage of output would progressively decline, providing a fiscal anchor going forward. In the budget, debt was forecast to be 51.2% of gross domestic product this fiscal year, falling to 50.7% the following year.
($1 = 1.2846 Canadian dollars)
(Reporting by Steve Scherer, with additional reporting by Fergal Smith in TorontoEditing by Nick Zieminski and Paul Simao)
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