Federal Budget 2023-2024: General comment
Updated: Mar 30
On March 28, Finance Minister Chrystia Freeland delivered her third budget, entitled "A Made-in-Canada Plan: Strong Middle Class, Affordable Economy, Healthy Future."
Canada's 2023-2024 federal budget focuses on clean energy, one-time assistance to help Canadians through the inflation crisis, and a dental plan for families earning less than $90,000 per year.
Despite signs of the country heading for an economic downturn, the federal government is committed to making Canada a leader in the green economy and carbon neutral industries through massive investments in these sectors. However, with a massive deficit of over $40 billion projected for the 2023-2024 fiscal year, the government has withdrawn its goal of returning to a balanced budget.
In her speech, the finance minister emphasized the opportunity for Canada to take advantage of this period of global economic transformation, as the United States and other democratic allies seek to make their economies carbon neutral and reduce their dependence on China and Russia in supply chains. This is to justify new spending.
To stay in power, the government has significantly increased its participation in a pan-Canadian dental plan. In addition, the Liberal government will double the GST tax credit to help 11 million Canadian households cope with the rising cost of living. This measure was also a request from the NDP to gain their support in the budget vote.
Government spending for 2023-2024 is estimated at $490 billion;
Revenue for the same period is estimated to be less than $450 billion;
The projected federal deficit for 2023-2024 is $40.1 billion, up from $30 billion projected last fall;
There is no target for returning to a balanced budget.
To continue the industrial transition to new environmental technologies, the federal government is increasing infrastructure funding and, most importantly, investing $80 billion over 10 years in the clean economy. This includes $16 billion for hydrogen projects and nearly $26 billion to fund a clean energy production tax credit.
This is a kind of response to the U.S. government, which recently proposed $400 billion in similar spending in its own budget.
The government's response to inflation includes new spending. The GST tax credit will be doubled. A one-time payment will be made to 11 million households over the next few months to help them meet current expenses. Like the Québec cheques in 2022, these payments will be income-tested and unconditional as long as they do not reach the income limit.
To help Canadians, the government also intends to promote the right to repair, but only mentions low-cost items and electronics.
The budget presented by Minister Freeland does not include any tax cuts for individuals. The federal government continues to favour specific tax credits over tax cuts.
Health and social services
The federal government continues to spend in areas of provincial jurisdiction. In keeping with its agreement with the NDP and to secure their support, the Liberal government is adding $8 billion to its dental care program. This is more than double the amount announced in last fall's economic update. Seniors and youth up to the age of 18 would also be covered.
This is in addition to the $46 billion in health transfers announced in negotiations with the provinces a few months ago.
The federal minimum wage will rise to just over $16.50, but there will be no new money for housing, except for aboriginal communities.
The most important announcement, long overdue, is that several so-called unwanted fees will be reduced. The most important of these is the interchange fee charged by credit card companies, particularly Visa and Mastercard, up to a maximum of 27%. As the Voluntary Participation Agreement expires on January 12, 2024, it will be interesting to see how the fee reductions are applied, as the Minister has announced that the measures will be cumulative and will not simply replace the previous agreement.
The payment to families for the GST credit will help businesses, which are often the first to benefit when citizens have more disposable income.
The excise tax on alcohol will increase by only 2% this year, instead of the planned 6.3% increase. This measure will not take effect until 2023 and will cost alcohol consumers $100 million.
The federal budget introduces several new expenditures and, surprisingly, fails to maintain a balanced budget target. Faced with the need to satisfy the NDP by increasing spending and to be good managers, the Liberals have chosen to spend and ensure their short-term parliamentary survival.
The Finance Minister acknowledges the impending recession and paints a bleaker picture than her provincial counterparts have in recent weeks. However, the disappearance of the government's room for maneuver comes as a surprise at a time when an economic slowdown is feared. The lack of clear fiscal discipline is also a concern.
Investment in new green technologies is a response to the United States. Once again, the Canadian government is moving its priorities closer to those of the U.S. in order to maintain investment and remain competitive. We will see the results of these cash injections, but in the medium term, they will mainly benefit large companies that can afford to participate in the launch and maintenance of large projects.
As far as the fight against inflation is concerned, the federal government is following Québec's strategy of a one-time payment to the least fortunate households. It is strange to find such a strategy among the anti-inflation measures since the increase in disposable income could potentially increase spending. However, this is good news for families and local businesses.
The NDP has already announced its intention to support the budget, while the official opposition will vote against it.
With the support of one of the opposition parties, there will be no federal election in the near future.