Chrystia Freeland, who resigned as Canada's finance minister
Credit: Reuters File Photo
Ottawa: Canadian Prime Minister Justin Trudeau's spending related to the pandemic and other one-off costs blew a bigger than expected hole in the government's budget last year, its fiscal update showed on Monday, hours after the finance minister quit in a surprise move.
Canada's fiscal deficit for the year ended March came in at C$61.9 billion ($43.45 billion) - about 50 per cent more than what was projected and missing one of the three key fiscal objectives Finance Minister Chrystia Freeland had set to achieve.
The fiscal update, known as the Fall Economic Statement, was much delayed this year leading to widespread speculation by economists and analysts that the government would have blown past its fiscal targets.
The update came after Freeland tendered her resignation on differences with Trudeau on government spending.
In 2023-24, the government is expecting to record expenses to the tune of about C$16.4 billion related to Indigenous contingent liabilities and C$4.7 billion related to the COVID-19 pandemic, which pushed its deficit figures higher, the fiscal update said.
Even without these expenses, the deficit would have been roughly C$40.8 billion - still higher than the C$40 billion that had been forecast.
"There's not really any fiscal room for them to maneuver at all considering there are a lot of risks in the economy coming into 2025," said Pedro Antunes, chief economist of Conference Board of Canada.
The fiscal anchors essentially help contain and guide government spending to create buffers for future economic shocks and to retain the confidence of global investors and markets.
In November 2023, Freeland promised a 2023-24 deficit at or below C$40.1 billion ($28.17 billion), to reduce the debt-to-GDP ratio in 2024-25 below 42.4 per cent and to keep it declining. She pledged a declining deficit-to-GDP ratio in 2024-25 and to keep deficits below 1 per cent in 2026-27 and future years.
While the government managed to meet its debt-to-GDP target, its deficit-to-GDP shot up to 2.1 per cent from 1.4 per cent forecast.
The government, in its update, changed its objective to only maintaining its debt-to-GDP target, and moved away from its deficit-related goals.
"An important fiscal sustainability metric — and the government's fiscal anchor — is to maintain a declining federal debt-to-GDP ratio," the statement said.
The deficit for 2024/25 is seen at C$48.3 billion, or 1.6 per cent of GDP, versus the C$39.8 billion projected in April.
Next year is expected to be a tumultuous year for Canada as it seeks to drastically cut the number of immigrants coming into the country. This would coincide with general elections before October where polls show Trudeau's Liberal Party would lose.
Canada also faces a 25 per cent tariff threat from US President-elect Donald Trump unless it secures its border to stop the flow of drugs and immigrants.
"The government is committed to Securing Our Borders and combating criminal networks that seek to move illicit goods, drugs and people across our shared border with the United States," the update said, adding that it has allocated C$1.3 billion for beefing up its border.
The government estimates that GDP growth for next year is likely to be 1.7 per cent, down from 1.9 per cent estimated earlier, the government document showed.