Scotiabank: Balancing Boldness: Canada Tables Its Investment and Austerity Budget
- Canada’s Finance Minister Champagne tabled a much-hyped budget on November 4th. The plan sets out a substantive investment agenda paired with operational restraint as the Carney government attempts to rebuild the country’s productive capacity in the face of existential shocks.
- The final price tag for new spending in Budget 2025 comes in at a hefty $90 bn ($149 bn in gross outlays offset by $60 bn in savings measures). Items already legislated since taking office add another $36 bn, while a weaker economic outlook accounts for a further $42 bn deterioration in the fiscal outlook.
- Key measures include a ramp-up in military spending, a new infrastructure fund, as well as a slew of previously announced measures including those related to trade relief and diversification measures. Housing and affordability measures are features but mostly repeat earlier tax cuts and housing announcements. The budget also moves forward with public sector and program spending cuts to offset new spending.
- The budget also leans on off-balance sheet measures to support higher lending through Crown corporations as well as capital acquisition that combined add an incremental $29 bn to financial requirements over the horizon.
- The government is projecting a series of larger deficits that would peak this year at 2.5% of GDP ($78.3 bn), 2% next year ($65.4 bn), before descending to 1.5% by FY30. This would push net debt up by 1.9 ppts over the horizon to a peak of 43.3% of GDP in FY28 where it would largely stabilize. A declining deficit as a share of GDP over the horizon is confirmed as an anchor in the budget, along with the commitment to balance the operational budget within three years.
- Incremental investment related to infrastructure and public investment adds ~0.3% of GDP annually over the horizon which is largely in line with expectations—if not marginally on the low side but total incremental annual outlays amount to closer to ~0.9% of GDP (before factoring in public sector cuts).
- On net, it’s not clear this would result in an incremental boost to growth given much is already baked into forecasts already, and plans comes with considerable execution risk still.
- All this unfolds against a backdrop of global volatility, where unpredictability is the norm. Canada’s fiscal footing is relatively solid, but its deep ties to US policy mean the budget’s long-term strategy could be buffeted by the news cycle.
- The sleeper risk may be closer to home. The budget asks Canadians to wait for long-term payoffs while managing short-term sacrifices. It will take more than one budget cycle to see results.
- It may be the type of budget Canada needs—but the government still has to convince Canadians it’s the one they want if they hope to catalyze investment.
TD Bank: What the Bank of Canada rate cut could mean for you
| (The Bank of Canada (BoC) just announced it is cutting its interest rate by 25 basis points, bringing it down from 2.50% to 2.25%.This is the second consecutive cut from the central bank, as the BoC also reduced its rate by 25 basis points in September.At its October 29 announcement, Canada’s central bank said:”With ongoing weakness in the economy and inflation expected to remain close to the 2% target, Governing Council decided to cut the policy rate by 25 basis points. If inflation and economic activity evolve broadly in line with the October projection, Governing Council sees the current policy rate at about the right level to keep inflation close to 2% while helping the economy through this period of structural adjustment.”According to TD Deputy Chief Economist Derek Burleton, the BoC wanted to take out a bit more “insurance” against a weakening job market.“The unemployment rate has been trending upwards, while the recent Bank of Canada Business Outlook Survey reported soft hiring intentions and fragile consumer sentiment,” Burleton said.“The BoC continues to use a risk-management strategy towards interest rate setting. Although inflation has remained a bit sticky, the decision to cut again suggests that the central bank is more concerned about downside growth risks.”stories.td.com |
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