(Bloomberg) -- Canadian Finance Minister Chrystia Freeland said the government will keep its goal of reducing its debt-to-gross domestic product ratio over time, but sidestepped questions about the size of the budget deficit.
Freeland is scheduled to give a fiscal update on Dec. 16 amid widespread speculation that the shortfall for the last fiscal year will be higher than the finance minister projected in her budget in April.
At the time, the government said it would record deficits of about C$40 billion ($28.2 billion) for the fiscal year that ended March 31, and for the current year. Freeland rejected all questions about the deficit figures at a news conference Tuesday, focusing on debt.
“I expect that the debt-to-GDP ratio we projected in the spring budget for the fiscal year 2023-24 will be met,” she said.
The debt-to-GDP ratio projected in the budget for the last fiscal year was 42.1%. Using the latest GDP data, which was upwardly revised, the government could have run a deficit of C$60 billion or more while remaining within the bounds of that target.
Freeland’s comments on Tuesday indicate the government is trying to refocus attention on its long-term fiscal anchor of a declining debt-to-GDP ratio rather than its more recent commitments to limit the size of its deficits.
Her government first set the anchor in 2021, promising a declining ratio of debt-to-GDP over time. After it forecast a rising ratio for the 2023-24 fiscal year in the 2023 budget, it added additional objectives in its fiscal update several months later, including maintaining the deficit at or below C$40.1 billion for that fiscal year.
The majority of economists in a Bloomberg survey expect Freeland to reveal a higher deficit when the final numbers are released. The parliamentary budget officer, Yves Giroux, expects a shortfall of C$46.8 billion for 2023-24.
Asked repeatedly by reporters whether she would meet her earlier deficit goal, Freeland declined to answer. “I chose my words with care,” she said.
The C$40.1 billion shortfall projected in the spring budget would have been about 1.4% of the country’s economy, compared with the US deficit of more than 6% of GDP — though Canada doesn’t have the luxury of being home to the world’s reserve currency.
“If your debt is declining as a share of the economy, by definition, your fiscal position is sustainable, and that is really important,” Freeland told reporters.
With inflation closer to the central bank’s 2% target and economic growth weakened, there’s less risk that fiscal shortfalls will re-stoke price pressures and prevent monetary policymakers from continuing to cut interest rates.
And given an election is due by October next year, there’s likely to be additional pressures on the bottom line. Prime Minister Justin Trudeau has already announced an expensive federal sales tax holiday and rebate checks in a bid to regain traction with the electorate, who polls suggest increasingly favor Pierre Poilievre’s Conservatives.
“It’s nothing more than an illusion as they’re benefiting from the GDP revisions,” Benjamin Reitzes, macro strategist at the Bank of Montreal, said by email. “Next week’s fall economic satement will almost certainly show bigger deficits than estimated in the budget for the current fiscal year and probably last year too.”
There are also risks of more program spending to counter President-elect Donald Trump’s tariff threats, which economists say will severely impact Canada’s gross domestic product. If the northern nation responds in kind, the result is likely to be stagflationary — marked by sluggish economic growth amid high price pressures — and while the monetary policy response is less clear, demands for more fiscal expenditures would mount.
“You can’t pick and choose fiscal anchors as you go, and renege on a commitment you made only a year ago,” said Robert Asselin, senior vice president of policy at the Business Council of Canada and a former adviser to Freeland’s predecessor, Bill Morneau. “The fact of the matter is this government is losing control of public finances and Canadians are noticing.”
--With assistance from Brian Platt and Jay Zhao-Murray.
(Provides broader estimate of potential deficit size in paragraph five. An earlier update added more details and reaction.)
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