Chrystia Freeland to present federal budget on April 16

Canadians will get a look at the state of federal finances when Deputy Prime Minister Chrystia Freeland tables her budget next month.

The government has been trying to rein in spending after years of big COVID-era budget deficits that more than doubled the national debt to roughly $1.2 trillion — a debtload that is costing Ottawa tens of billions of dollars a year to finance in an era of higher interest rates.

Freeland's fall economic statement projected a budget deficit of $38.4 billion for the upcoming 2024-25 fiscal year. That number could move higher — or lower — depending on how the government has planned for the penultimate budget of its mandate.

The budget will give Canadians some insight into the government's priorities in what could be one of the last spending documents before an expected 2025 election.

The NDP has agreed to prop up the Liberals until next year and a national vote could follow after the supply-and-confidence agreement between the two parties comes to an end.

Freeland has been involved in months of formal pre-budget consultations with interested parties who are jockeying to get more federal cash.

While it has pushed to cut spending — the main estimates tabled last week suggest the government wants to "refocus" or divert spending worth about $4.8 billion a year by 2026-27 and beyond — it's likely the government will reveal some new funding for its priority files.

The government has tried to tackle the housing supply crunch with a series of initiatives, including the housing accelerator fund that sends extra money to cities that change their municipal planning laws to allow for more homes to be built.

The government also lifted the federal sales tax on new rental construction, a costly measure that some home builders say is already making a difference in the cost of construction.

Freeland could earmark more cash for programs that bolster the country's housing stock. The Canadian Mortgage and Housing Corporation (CMHC) says the country needs 3.5 million more units by 2030 to restore housing affordability.

The government is facing political heat from Conservative Leader Pierre Poilievre, who has made the country's housing woes a key plank of his policy platform.

Conservative MP Pierre Poilievre speaks during a news conference in Toronto on housing policy on April, 19, 2022. (Alex Lupul/CBC)

In a media statement announcing the budget date, Freeland suggested there's more coming for housing.

"Our economic plan is about building more homes faster, making life more affordable and creating more good jobs. This plan will unlock pathways to a good middle class life for the next generation — because Canada is stronger when everyone has an equal chance to succeed," she said.

Freeland also conceded last week at a news conference that more action is required to restore housing affordability.

"The single biggest thing in a family's budget is paying your mortgage or the rent. We just have to build more, faster. We are committed to that. We are doing it," Freeland said.

The Business Council of Canada, which represents some of the country's largest private-sector employers, is urging the government to avoid introducing any net new spending.

In a media statement, the council said keeping a lid on the finances would "help ease prices and rates for Canadians."

The council pointed to recent remarks from Bank of Canada Governor Tiff Macklem, who warned MPs at a recent Commons committee meeting that large government spending increases could "get in the way of getting inflation back down to target in the timeline we've laid out." The bank's inflation target is between two and three per cent.

Bank of Canada Governor Tiff Macklem waits to appear at a Finance Committee meeting on Thursday, February 1, 2024 in Ottawa. (Adrian Wyld/Canadian Press)

If federal and provincial government spending growth significantly exceeds the economic growth rate (which is also about two per cent), Macklem said it could juice inflation and prompt the bank to respond with rate increases.

"If governments were to add more spending, it could start to get in the way of getting inflation back down, and that would not be helpful," Macklem said at the Feb. 1 committee meeting.

The Federation of Canadian Municipalities (FCM), the group that represents cities and towns, has also asked the government to renew some infrastructure programs that are due to expire — a cash injection they say they need to keep up with a booming population.

Prime Minister Justin Trudeau promised municipal leaders last May that the "next long-term infrastructure plan will be revealed this fall" — but it never materialized.

"We were promised infrastructure funding, and to this day, we have not heard of a plan. So as the budget comes closer and closer, we're getting more and more concerned that there's no plan," FCM president Scott Pearce told reporters at a news conference.

Prime Minister Justin Trudeau makes an announcement highlighting Budget 2022 investments in electric vehicle infrastructure in Victoria in April 2022. (Ken Mizokoshi/CBC)

Freeland has defended the government's record on infrastructure spending.

"There is no federal government in Canadian history that has invested as ambitiously and as aggressively in infrastructure as our government. It was the centrepiece of our 2015 campaign commitment and we have delivered on that," Freeland said, touting Ottawa's plan that will allocate about $7 billion a year in 2025-26.

Pharmacare, one of the government's big-ticket items, will not be included in this budget because there's still legislation coming before Parliament to enact the regime.

Health Minister Mark Holland also has to cut deals with the provinces and territories before any money can be spent on drug coverage.

The government also hasn't decided whether it will pursue a fully universal, single-payer pharmacare program, which would be much more costly than its current plan of just covering contraception and diabetes treatments.

Deputy Prime Minister Chrystia Freeland, left, and Defence Minister Bill Blair talk to the media during a joint exercise in which Polish and Canadian troops provide training to soldiers from Ukraine near Jezewo, central Poland, on Sunday, Feb. 25, 2024. (Czarek Sokolowski/AP Photo)

The government is also under pressure to increase military spending.

Some of the country's NATO allies have noted Canada has consistently failed to meet its promise to spend two per cent of GDP on the armed forces — a commitment that other members routinely meet or exceed.

It's unlikely Freeland's budget will allocate what's required to hit the two per cent mark, as that would require an extra $20 billion a year in spending.

Asked about some recently announced spending cuts at a press conference in Edmonton Monday, Defence Minister Bill Blair said those reductions are aimed at curbing the use of outside consultants, reducing executive travel and reining in "professional services" while redirecting the money saved for use elsewhere.

He stressed that the defence budget has grown considerably since the Liberal government was first elected (total spending will double between 2017 and 2026) and there will be more dollars for other crucial areas in the years to come.

"As in any bureaucracy, I think it's important to look for the most efficient way to actually deliver the results that Canadians need and deliver for the Canadian Armed Forces," Blair said, adding the government wants "value" for taxpayers' dollars spent on the CAF and the national defence department.

"Our defence spending is increasing and will continue to increase. We've clearly indicated that we must do more," Blair said.

One area where there may be more spending is in recruiting new personnel.

The armed forces is severely understaffed after years of lacklustre recruitment drives meant to bolster the ranks and replace retiring members.

"We've got some work to do," Blair said of the military's readiness amid a staffing crunch.

The fall economic statement, tabled in November, explained how the government now spends more to service its debt than it does on the military.

Ottawa will spend $28.9 billion on the Canadian Armed Forces this fiscal year — about $18 billion less than what the government will send in payments to the banks and bondholders carrying Canada's debt.