As Prime Minister Justin Trudeau gathers with his cabinet for a pre-return to Parliament retreat to plot out their priorities for 2023, a big focus of the conversation is on Canadians’ cost of living concerns.
Moreover, the question circulating at the meeting of ministers is how the Liberals plan to pay for their domestic political and international commitments as well as a potential multibillion-dollar deal with the provinces on health care, while being mindful of the risk of a recession.
As Trudeau meets with his front bench, a new report from the Business Council of Canada and Bennett Jones warns that there’s a “high risk” the Liberals won’t be able to follow through on all their spending plans without veering off of a more prudent fiscal track.
Helping cabinet assess the lay of the economic landscape on Tuesday, ministers heard from a trio of top economic minds ahead of what is expected to be yet another Bank of Canada interest rate hike Wednesday.
So, what’s being said about all this at the federal cabinet retreat?
Here are some of the key quotes.
DEPUTY PRIME MINISTER AND FINANCE MINISTER CHRYSTIA FREELAND
“We have talked a lot about the work that we are doing as a government, what Canadians are doing, Canadian people, Canadian businesses, to increase Canada’s economic capacity to increase growth and to drive the creation of more good jobs for Canadians. We spoke very much about the challenges ahead. There is a lot of uncertainty, a lot of volatility in the global economy. And we also spoke about the position of strength from which Canada enters this challenging period,” Freeland said during a scrum with reporters at the retreat on Tuesday.
“We do need to continue to take a fiscally prudent approach. We still do not know for sure how the plane is going to land. We do not know for sure how the COVID recession is going to finally play out… So, some challenging things to all do at the same time, and that’s the balance we’re going to have to find in the budget,” she said.
ASSOCIATE MINISTER OF FINANCE RANDY BOISSONNAULT
“We’re already seeing a slowdown in the economy, and it means that we’re going have to make some really serious choices about how we invest in Canadians, how we grow the economy. Where we actually direct the fiscal room that we have, the money that we have to invest in budget  so we make smart choices for the future… Because of what we’re seeing with inflation, still at about 6.3 per cent, three times higher than we want to see it, that we are going to continue to see a slowdown in the economy. So, 2023 is going to be a turbulent economic year,” Boissonnault said in an interview on CTV News Channel’s Power Play with Vassy Kapelos, live from the retreat on Tuesday.
“That means that we’re going to face some tough times as Canadians. And that’s why our supports for Canadians will continue. We’ve been through this before, and the economic fundamentals of the economy are good… After 2023, the future is very bright for Canada. We can get into the international reasons for that, but the bottom-line message is we’re going to have to make some really clear choices for Canadians in this budget,” he said.
FORMER SENIOR DEPUTY BANK OF CANADA GOVERNOR CAROLYN WILKINS
“You know, what people have in their minds is: ‘Where are interest rates going to level out? And if they do come down, or when they come down, how fast and by how much?’ … There are risks on the downside to the economic outlook. Evidently we haven’t seen all the effects of interest rates so far because it takes time for them to act. And many, many forecasters say it’s really going to be in the first three quarters of this year that we see the effects on GDP growth and on employment,” Wilkins said during a scrum with reporters at the retreat on Tuesday.
“And that’s going to bring inflation down even more. On the other hand, we see China opening, we see still some tightening in in labour markets here in Canada, in the U.S. and in other countries. And so that could mean that inflation stays a bit higher, or sticky at a level that’s lower than it is today, but still higher than the two per cent inflation targets that many of us have, and that because of that interest rates will either have to rise more or stay higher for longer,” she said.
UNIVERSITY OF BRITISH COLUMBIA ECONOMICS PROFESSOR KEVIN MILLIGAN
“Right now, as we look at the new commitments that are being made, we have to wait to see what comes out on the health accord. You know, my suspicion is there is not going to be an awful lot up front on that, it’s going to be a long run deal such that it doesn’t have as much of an impact over the short run considerations… We are still in a situation where the Bank of Canada is paying attention to what happens on fiscal policy. If you go too far, too fast, the Bank of Canada is going to simply ratchet things up and make the interest rate environment more challenging,” Milligan said during a scrum with reporters at the retreat on Tuesday.
“I think it is most likely over the next year that there’s going to be a soft patch in the economy. And I think all policymakers should keep that in mind. Whether that’s making sure that the employment insurance system is ready, whether that’s thinking about another round of income transfers to lower-income folks in a targeted way, those are the kinds of policy measures you might consider when the economy hits a slow patch,” he said.
Inflation in Canada: Finance ministers meet
TORONTO – The two big spending pressures on the federal government right now are health care and the global transition to a clean economy, Deputy Prime Minister and Finance Minister Chrystia Freeland said Friday.
After hosting an in-person meeting with the provincial and territorial finance ministers, Freeland said U.S. President Joe Biden’s Inflation Reduction Act, which includes electric-vehicle incentives that favour manufacturers in Canada and Mexico as well as the U.S., has changed the playing field when it comes to the global competition for capital.
“I cannot emphasize too strongly how much I believe that we need to seize the moment and build the clean economy of the 21st century,” Freeland said during a news conference held at the University of Toronto’s Munk School of Global Affairs and Public Policy.
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“This is a huge economic opportunity.”
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Canada needs to invest in the transition in order to potentially have an outsized share in the economy of the future, she said, or it risks being left behind.
This year in particular will be an important year for attracting capital to Canada, she said, calling for the provinces and territories to chip in.
“This is a truly historic, once-in-a-generation economic moment and it will take a team Canada effort to seize it.”
At the same time, Freeland spoke of the need for fiscal restraint amid economic uncertainty.
“We know that one of the most important things the federal government can do to help Canadians today is to be mindful of our responsibility not to pour fuel on the fire of inflation,” she said.
Freeland said these two major spending pressures, which were among the topics prioritized at Friday’s meeting, come at a time of a global economic slowdown which poses restraint on government spending.
Prime Minister Justin Trudeau is set to meet with the premiers Feb. 7 to discuss a long-awaited deal on health-care spending. The provinces have been asking for increases to the health transfer to the tune of billions of dollars.
Freeland said it’s clear that the federal government needs to invest in health care and reiterated the government’s commitment to doing so but would not say whether she thinks the amount the provinces are asking for in increased health transfers is feasible.
“It’s time to see the numbers,” Quebec Finance Minister Eric Girard said Friday afternoon, in anticipation of the Feb. 7 meeting.
The meeting of the finance ministers comes at a tense time for many Canadian consumers, with inflation still running hot and interest rates much higher than they were a year ago.
The ministers also spoke with Bank of Canada governor Tiff Macklem Friday and discussed the economic outlook for Canada and the world, said Freeland.
“We’re very aware of the uncertainty in the global economy right now,” said Freeland. “Inflation is high and interest rates are high.”
“Things are tough for a lot of Canadians and a lot of Canadian families today and at the federal level, this is a time of real fiscal constraint.”
The Bank of Canada raised its key interest rate again last week, bringing it to 4.5 per cent, but signalled it’s taking a pause to let the impact of its aggressive hiking cycle sink in.
The economy is showing signs of slowing, but inflation was still high at 6.3 per cent in December, with food prices in particular remaining elevated year over year.
Interest rates have put a damper on the housing market, sending prices and sales downward for months on end even as the cost of renting went up in 2022.
Meanwhile, the labour market has remained strong, with the unemployment rate nearing record lows in December at five per cent.
This report by The Canadian Press was first published Feb. 3, 2023.
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