OTTAWA—The government’s Fall Economic Statement (FES) on Nov. 3 announced $30 billion in more spending, yet despite warning of an impending recession, its main projection shows an improving fiscal picture and a potential return to black ink.
The FES is the government’s fall mini-budget. Under the government’s base-case official projection, which assumes the economy narrowly avoids a recession, the deficit for the current fiscal year ending in March 2023 is $36.4 billion. The feds project deficits to continue shrinking until attaining a fiscal surplus of $4.5 billion in 2027-28.
But given growing expectations of a recession as central banks raise interest rates aggressively, the feds provided a downside scenario which forecasts an economic contraction of 0.9 percent in 2023. Under this scenario, the deficit would be $49.1 billion in 2022-23 and it remains in the red, decreasing to $8.3 billion in 2027-28.
For the current fiscal year 2022-23, the Parliamentary Budget Officer on Oct. 13 projected the deficit to hit $25.8 billion under status quo policy.
The government’s “fiscal anchor” is the unwinding of COVID-19 related deficits and reducing the federal debt-to-GDP (gross domestic product) ratio over the medium term. That debt sustainability ratio is projected to decline from 46.5 percent in 2021-22 to 41.5 percent in 2026-27.
Given the rapid rise in interest rates, the government’s interest expense is projected to rise over the projection window, starting at $34.7 billion in 2022-23.
The federal debt is projected to grow from roughly $1.13 trillion in March 2022 to almost $1.25 trillion in 2027-28.
GST Credit
The doubling of the GST credit for six months, announced on Sept. 13, will cost the government $2.475 billion and is the biggest single measure in the “Making Life More Affordable” part of the FES.
The government says that starting Nov. 4, about 11 million low- and modest-income current GST credit recipients will receive an additional payment.
Also, interest on the federal portion of all Canada Student Loans and Canada Apprentice Loans will be permanently interest-free.
Nevertheless, government’s projections predict the most encouraging net debt forecasts among the G7.
