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Economic Viewpoint

Federal Budget 2023 Preview: Champagne Taste on a Beer Bottle Budget

March 22, 2023
Randall Bartlett, Senior Director of Canadian Economics, and Marc-Antoine Dumont, Economist

  • As with every federal budget, there is a lot of anticipation in the lead up to Budget 2023. But we think the federal government would be wise to err on the side of keeping new spending to a minimum given the uncertainty around the economic outlook.
  • Our baseline fiscal forecast suggests that federal finances are sustainable in the absence of new spending, even after including the recently‑announced health care transfers. A similar finding was also reached by the Parliamentary Budget Officer (PBO). However, our outlook is for much larger deficits and a higher debt‑to‑GDP track based largely on our more conservative economic projection, particularly for the pace of nominal GDP growth.
  • Even if the federal government has less fiscal room than they may like, there will be new spending announced in Budget 2023. The federal government needs to better position Canada to compete with the US for investment in the energy transition, particularly in areas where we have a competitive advantage. It is also expected to meet its unmet commitments laid out in the Supply and Confidence Agreement with the NDP.
  • But it’s not difficult to imagine federal fiscal sustainability changing course if the economy slows sharply at the same time spending ramps up significantly. While our scenarios suggest this isn’t a repeat of the fiscal fiasco that was the 1980s and 1990s, they illustrate that the path ahead could be very challenging for the federal government. The risk is that excess spending today could lead to spending cuts and/or tax hikes down the road.