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Federal budget

Canada: Budget 2022

Economic Tailwinds and Modest New Spending Lead to Improved Fiscal Outlook

April 7, 2022
Jimmy Jean, Vice-President, Chief Economist and Strategist
Randall Bartlett, Senior Director of Canadian Economics

Summary of the publication

Higher real GDP, employment and inflation since the Economic & Fiscal Update 2021 (EFU 2021) have boosted federal government revenues significantly in Budget 2022 and contributed to lower spending in the near term, particularly on pandemic-related programs.

The federal budget deficit is now projected to fall from 4.6% of GDP ($113.8 billion) in the 2021–2022 fiscal year to 0.3% of GDP ($8.4 billion) in the 2026–2027 fiscal year. Higher revenues explain the improved outlook, which was kept in check by only modestly higher, albeit still elevated, spending.

But that doesn’t mean there weren’t any new measures. Big items in the window include a national dental care plan, a modest increase in spending on defense, a Housing Accelerator Fund to support municipalities increasing the supply of housing, an investment tax credit for carbon capture, utilization, and storage, the list goes on.

On the revenue side of things, the federal government’s focus is on generating revenues by taxing financial institutions and taxable income that Canadian companies earn abroad. There are also meaningful revenues and savings booked from beefing up the Canada Revenue Agency’s capacity and the federal government finding efficiencies—ambitious goals for any administration.

The result of this improved economic and deficit outlook is a debt-to-GDP profile that is comfortably falling over the forecast, from 47.5% in the 2020–2021 fiscal year to 41.5% six years later. Even in a more adverse scenario, the debt forecast is expected to fall to below where it was at the fiscal year that just ended, at 42.8% of GDP. This should keep fiscal hawks and rating agencies happy for now.

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