The federal government is aiming to strike a balance with targeted new supports and fiscal discipline as it charts a course for Ottawa’s finances over the next few years in the face of soaring inflation and a looming economic downturn.

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Ottawa aims to balance fiscal restraint with targeted support amid darkening economic outlook Back to video

Ottawa acknowledged in its Fall economic statement Thursday that inflation has risen much higher than projected in the Spring Budget, with the latest CPI reading sitting at 6.9 per cent in September. Interest rates around the world have risen sharply this year to combat these price pressures, prompting a global economic slowdown and expectations that Canada would see its own growth stall next year.

The fiscal update slashes growth forecasts for this year and next from its Spring projections. Real gross domestic product is seen slowing to 0.7 per cent in 2023 from the originally forecast 3.1 per cent. GDP this year is expected to grow 3.2 per cent, down from an earlier forecast of 3.9 per cent.

Against this gloomier economic backdrop, the update stressed that fiscal prudence would be important to mitigate the impact of inflation and ensure the government had the capacity to provide targeted support to Canadians.

The government is now expecting the deficit to shrink to $36.4 billion in fiscal 2022-2023 and to reach a $4.5 billion surplus by fiscal 2027-2028.

However, Thursday’s statement also warned of a downside scenario that would see the budgetary balance deteriorating by an average of around $16 billion per year and adding 3.3 percentage points to the federal debt-to-GDP ratio by 2027-2028 if tax revenues fell, program costs were higher than expected, and if public debt charges rose dramatically.

“I am confident that we have the right approach… in this Fall economic statement,” said Deputy Prime Minister Chrystia Freeland during a press conference. “And what we’re announcing today – what we’ve been doing throughout – is to strike a balance between necessary, compassionate support for Canadians and fiscal responsibility.”

A key part of the update was “new support for Canadians who need it most”, or targeted aid for lower-income Canadians to help them cope with the coming downturn and possible recession.

• The government said it would automatically advance Canada Workers Benefit payments for Canadians who qualified for the measure last year — a move that is expected to cost $4 billion over six years beginning in 2022/2023. This measure could provide $714 for single workers and $1,231 for a family split between three advance payments to help cope with rapidly rising costs of living.
• It also plans to double the goods and services tax credit payment for an estimated 11 million low- and moderate-income Canadians over the next six months in a move expected to provide $2.5 billion in additional support. Single Canadians without children are expected to receive an extra $234, families can get up to an extra $467 and seniors may receive an extra $225 on average.
• The government also plans to move ahead on the Canada Dental Benefit it established in partnership with the New Democratic Party to provide payments of up to $1,300 per child under the age of 12 for families without dental coverage making less than $90,000 a year. The legislation was first introduced in September and the government anticipates this will provide support for 500,000 Canadian children as the government develops a national dental care program by 2025.
• An investment of $250 million over five years into employment training starting in fiscal 2023-2024 to prepare Canadian workers for a shifting global economy under its Employment and Social Development Canada program.

Once Canada comes out the other side of the anticipated global slowdown next year, Freeland remains optimistic of the country’s economic prospects.

“So far this year, our economic growth has been the strongest in the G7,” Freeland said. “And when we get through the coming global slowdown with the COVID recession behind us, there is no country in the world better-placed than Canada to thrive.”

• Email: shughes@postmedia.com | Twitter: StephHughes95