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Economic Viewpoint

Federal Fiscal Outlook: Stimulus Cheques and Sanity Checks

December 15, 2022
Randall Bartlett
Senior Director of Canadian Economics

  • The Fall Economic Statement 2022 was like a frog prince: it had a few jewels but also some warts. From questionable changes to program design and ongoing concerns about what’s coming in Budget 2023, there are good reasons to be skeptical of the merits of the announced initiatives. Luckily, the affordability measures are unlikely to exacerbate inflation or hinder economic growth.
  • From a fiscal forecast perspective, the good news is the federal government set aside some of the revenue windfall for a rainy day. The bad news is it looks like it’s going to need it. Our forecasts suggest the economic and fiscal outlook will be weaker than projected in FES 2022, and the federal government’s downside scenario is looking increasingly likely to become the baseline. The same is true for the Parliamentary Budget Officer’s risk scenario. This will make it more difficult to fund the new energy transition measures expected in Budget 2023.
  • Fortunately, federal finances are currently on a sustainable path, with debt expected to continuously fall as a share of GDP. It will be imperative for the federal government to keep it that way. But the Government of Canada does have some wiggle room. We estimate that the federal government could increase spending and/or reduce revenues by roughly 0.8% of GDP on average annually while keeping the debt-to-GDP ratio at or below last year’s level (45.2%) through the 2027–28 fiscal year. That works out to over $25B on average annually over the next five years.