OTTAWA (Reuters) – Canada is expected to announce on Monday it blew past its deficit target for last year, when Finance Minister Chrystia Freeland presents her mid-term budget, and economists said estimates for this year could also be higher as spending increases.
The fiscal update, called the Fall Economic Statement, will be presented later than usual and comes as U.S. President-elect Donald Trump threatens 25% tariffs on goods exported to the United States if Canada does not do more to stop immigrants and drugs from crossing the border.
Prime Minister Justin Trudeau runs a minority government that relies on opposition-party support and his approval ratings indicate he would lose to the Conservatives in an election that has to happen before the end of October.
“It is a very bad situation,” said Robert Asselin, senior vice president of policy at the Business Council of Canada, referring to spending pressures on the government.
“They are staring at a much worse deficit and economic outlook that is really not looking great in the short term,” he said, adding that he expects the deficit for last year and this year to be much higher than expected.
After economists criticized her for faltering on the fiscal guardrail of maintaining a declining debt-to-GDP ratio twice, Freeland in November last year proposed new anchors.
These anchors help contain and guide government spending to create buffers for future economic shocks and to retain the confidence of global investors and markets.
In November 2023, Freeland promised a 2023-24 deficit at or below C$40.1 billion ($28.17 billion), to reduce the debt-to-GDP ratio in 2024-25 below 42.4% and to keep it declining. She pledged a declining deficit-to-GDP ratio in 2024-25 and to keep deficits below 1% in 2026-27 and future years.
But she sparked concern last week when she declined to comment on the deficit target.
Freeland is due to present the FES to the House of Commons after 4 p.m. EST (2100 GMT).
SPENDING PRESSURES
Economists said temptations of more spending in an election year, Trudeau’s Christmas handouts including a two-month tax break, a fall in tax revenues due to fewer immigrants, and allocation for border security are some of the critical spending pressures the government is staring at.
A Canadian government source said a reference to spending on defending the border would be included in the statement, but few policy details.
Randall Bartlett, senior director of Canadian economics at Desjardins, said even the government’s debt-to-GDP target looks likely to worsen in light of these spending pressures.