Budget 2024 pledges $53B in new spending

Finance Minister Chrystia Freeland delivered a federal budget Tuesday that keeps the deficit capped at $40 billion, thanks to higher-than-expected government revenues and new taxes that largely offset billions in new spending. 

Freeland presented the federal budget in the House of Commons in the afternoon, which pledges $53 billion in new spending that she says is focused on economic justice for younger generations.

“We are moving with purpose to help build more homes, faster. We are making life cost less. We are driving the kind of economic growth that will ensure every generation of Canadians can reach their full potential,” said Freeland in her opening remarks in the House of Commons.

The Liberal government plans to pay for most of its new spending initiatives with higher taxes on the wealthiest Canadians and businesses, and from stronger-than-expected government revenues. 

The budget proposes to increase the capital gains inclusion rate, which refers to the taxable share of profit made on the sale of assets. 

The government is also proposing the Canadian Entrepreneurs’ Incentive, which will reduce the inclusion rate to a third on a lifetime maximum of $2 million in eligible capital gains.

“But the capital gains inclusion rate increase to 66.7% will create many net losers, including owners of medium-sized businesses,” Kelly said in a statement.

James Orlando, TD’s director of economics, said federal spending is speeding up but remains below the government’s self-imposed “speed limit.”

“We’re looking at a deficit profile that is going to be wider than what we saw just a few months ago. And so that means that you’re going to have greater spending, greater debt burden,” Orlando said in an interview. 

“But due to the fact that common growth has improved, you still have the government flying under their fiscal anchors.”

In the lead-up to the budget, Freeland promised that the government would abide by the fiscal guardrails it promised in the fall, including keeping the deficit from rising above $40.1 billion.

The fall economic statement also set the goal of keeping deficits below 1% of GDP beginning in 2026-27 and lowering the debt-to-GDP ratio in 2024-25 relative to the projection.

While the deficit for the 2023-24 fiscal year remained flat at $40 billion, it came in higher than previously forecast for the rest of the projection horizon.

Still, the deficit, deficit-to-GDP ratio and debt-to GDP ratio are all projected to fall every year until 2028-29. 

Federal finances are also benefiting from a stronger economy and higher-than-expected income tax revenues, which also helped the government pay for new measures without blowing through their promised fiscal guardrails.

The spending plan from Ottawa coincided with the latest consumer price index report. 

Canada’s annual inflation rate ticked up to 2.9% in March, while measures of core inflation cooled, reinforcing the possibility of a June rate for the Bank of Canada.

Governor Tiff Macklem applauded the federal government’s new fiscal anchors unveiled in the fall and has called for fiscal policy to row in the same direction as monetary policy.

But Orlando said increasing deficits don’t make the central bank’s job of fighting inflation easier.

“I would argue that … having greater deficits is inflationary for Canada. And so it’s not helping the Bank of Canada in any way with respect to bringing down inflation,” he said.

The federal deficit is projected to be $39.8 billion for the 2024-25 fiscal year, which is above the fall’s projection of $38.4 billion.