Experts say new measures in the federal government’s upcoming 2024 budget are likely limited amid tight fiscal conditions, but predict different figures for this year's deficit.
James Orlando, director and senior economist at TD Economics, said in a report last week that new spending in the 2024 federal budget, scheduled to be released on April 16, will focus on the previously announced pharmacare program. However, he noted that the ultimate budget impact of the program hinges on how it is expanded, as its current form only relates to diabetic medication and contraceptives.
“Beyond pharmacare, new budget measures are likely to be scant, with firepower being reserved for next year’s pre-election budget. The remaining focus will likely be on continuing to raise housing supply and address the cost of living,” Orlando said.
“No major tax measures are expected to be unveiled, though (the) government will likely continue to tout previously announced changes, including to the alternative minimum tax.”
In an interview with BNNBloomberg.ca on Tuesday, Orlando said the pharmacare program is something to watch for in the budget this year to “see the path” the government takes.
“We made note that having universal pharmacare is not likely in this budget, but they're trying to pick away at a few different pieces of (the) pharmacare landscape in Canada where they can add value,” he said.
On housing, Orlando said some “great programs” have already been introduced, including the GST rebate on purpose-built rental units.
“Now that got announced previously, and pretty much since that moment on we've seen an uptick in residential housing construction across Canada. So that seems like a policy that's that's working already,” he said.
“Could they increase it (and) provide even more incentives and different ways for builders to build more houses? I wouldn't be surprised to see something like that in there,” Orlando said adding that the government has not telegraphed anything on this.
Don Drummond, a professor at Queen's University and former chief economist at TD Bank, said in an interview with BNN Bloomberg last week that he expects the government will present an “election budget” by describing previously announced programs, such as the pharmacare bill.
“I just don't think they have the fiscal wherewithal unless they're going to increase taxes and …that doesn't seem to be the desire of this government, I really don't see how they have the latitude (or) the fiscal room to add yet more spending,” he said.
Orlando said in the report that he expects the budget to show the government is on track to meet fiscal targets set in 2023. He added that he expects the deficit to be $40 billion for the 2023-24 fiscal year, despite “hotter than previously anticipated program spending.”
Meanwhile, a report last week from Desjardins predicts an “outsized pace of spending” will result in the government running a deficit of around $47 billion.
Orlando said that if the government sets its budget at $40 billion for the current fiscal year, “they're going to give themselves probably between five to $10 billion in extra fiscal space to spend in outer years.”
“So it's not a huge amount of money, but you can do quite a bit of work with that,” he said.
Monetary, fiscal policy
Drummond highlighted that the Bank of Canada’s monetary policy report stated aggregate demand and supply in the economy “were roughly balanced” in late 2023.
“So the economy in level terms is performing quite satisfactorily, but we've had this great big deficit. So if we go back to the very simplest terms, back to Keynesian economics, if the economy is roughly balanced then your budget should be balanced,” he said.
“There's no reason why we should be stimulating the economy with a big deficit.”
Drummond said that the government has projected the deficit to “remain as high as $80 billion right out to the end of this decade.”
“So they're continuing through expenditure increases to stimulate the economy when not only does it not need to be doing it, but we have monetary authority desperately trying to bring us back to two per cent inflation. The two are not aligned,” he said.
With files from Bloomberg News.