One of Canada’s largest business groups says Prime Minister Justin Trudeau’s government is unlikely to follow through on its latest pledge to control its budget shortfalls.

We apologize, but this video has failed to load.

Try refreshing your browser, or
tap here to see other videos from our team.

Trudeau government likely to miss Canada's fiscal goal, business group warns Back to video

We apologize, but this video has failed to load.

Try refreshing your browser, or
tap here to see other videos from our team.

Play Video

In November, Finance Minister Prime Minister Justin Trudeau’s government added new fiscal objectives during the government’s update of the country’s finances, including a goal of keeping deficits below one per cent of gross domestic product, starting in the 2026-27 fiscal year.

Canada has a lower government debt burden than many other advanced economies, and the new targets play an important role in showing fiscal restraint, the government has argued. Bank of Canada governor Tiff Macklem called the new guardrails “helpful” to monetary policy.

But the government has systematically disregarded its past fiscal goals, raising doubts about its latest promise, according to a new report from the Business Council of Canada.

“To meet their proposed deficit target they’ll either need much stronger-than-expected economic growth or they have make substantial program cuts ahead of an election,” said report author Robert Asselin, the council’s senior vice president of policy and a former adviser to Freeland’s predecessor, Bill Morneau.

According to Asselin’s analysis, Canada’s federal deficits averaged 1.4 per cent of the country’s total output between 2017 and 2022 when adjusted for swings in economic activity, such as the COVID-19 pandemic shutdown.

Since the Second World War, the country has only twice brought its budget shortfall to below one per cent of GDP when its expenditures were above 17 per cent. This year, federal spending represents 17.3 per cent of GDP and projections have been “extremely unreliable” over the five-year forecast, Asselin wrote in the report.

With an election expected by the fall of 2025, pressures to spend will mount. Uncertainty about the impact of higher debt service payments are another concern.

During the pandemic, Freeland introduced a fiscal guardrail that linked federal spending to labour market conditions, but she abandoned it during the Prime Minister Justin Trudeau’s government, the report says.

In 2022, the government said its fiscal policy decisions would be guided by the medium-term goal of having a declining debt-to-GDP ratio, but it rose between 2022 and 2023.

“At some point people aren’t going to believe you and they’ll say your fiscal anchors aren’t credible,” Asselin said. “When you miss three targets in five years, at what point do markets say, this government isn’t doing what it said it would do?”

Bloomberg.com