Trudeau should curb spending to make way for rate cuts, economists say
Send a link to a friend
[March 05, 2024] By
Promit Mukherjee
OTTAWA (Reuters) - Canadian Prime Minister Justin Trudeau should rein in
spending in his upcoming budget if he wants interest rates to come down
quickly and alleviate the cost-of-living pressures slamming his polling
numbers, economists said.
"If (the government) did hold back its spending... that would help to
provide more of a disinflationary impulse to the Canadian economy,"
Randall Bartlett, senior director of Canadian Economics with Desjardins
Group.
The government had expected direct program expenses to fall by 8% this
year, but instead they have jumped by 6%, Bartlett said, adding that
further increases in spending in the budget would mean "the (central)
bank can't start cutting rates as early or as quickly as Canadians would
prefer".
Trudeau has expanded support of public health programs and social
services over the past eight years. During the pandemic, spending
expanded further and in 2020 Canada posted its biggest deficit since
World War Two.
Economists and analysts said time was running out for Trudeau to get his
fiscal house in order. A delay would not only damage his credibility at
a time when his poll numbers were abysmal but also could force the
central bank to keep rates higher for longer.
This year's budget will be presented to parliament on April 16, the
Finance Ministry said on Monday.
![](http://archives.lincolndailynews.com/2024/Mar/05/images/ads/current/ldn_booksda_CHASSKAREN_010924.png)
The Bank of Canada (BoC) has kept its key overnight rate at 5% in its
last four meetings as housing costs, food prices and wages continue to
stoke underlying inflation. The bank is again expected to keep rates on
hold at its next rate announcement on Wednesday.
The Liberals' spending habits have put it at odds with the central bank.
BoC governor Tiff Macklem has repeatedly warned that the level of
spending by the federal, provincial and municipal governments is not
helping ease inflation and could slow rate cuts.
Finance Minister Chrystia Freeland last month told lawmakers that the
government's budget would create conditions for rates to come down and
that the fiscal targets set last fall would be met.
[to top of second column] |
![](../images/030524PIX/busine84.jpg)
Canada’s Prime Minister Justin Trudeau speaks at Red River College
Polytechnic in Winnipeg, Manitoba, Canada February 15, 2024.
REUTERS/Shannon VanRaes/File Photo
![](http://archives.lincolndailynews.com/2017/Jul/22/images/ads/current/rohlfs_lda_072017.png)
But she is also promising measures to get more homes built amid a
housing crunch and to make life more affordable for Canadians.
Spending on salaries of government employees, grants, subsidies and
capital expenditure - direct program expenses - has risen to about
10% of the GDP currently from 5% in 2015. In the first nine months
of the year, these expenses have already surpassed last year's
number by a third.
The federal deficit swelled by more than four times versus a year
earlier to C$23.6 billion during the first nine months of the fiscal
year, official data show.
Freeland proposed new fiscal anchors in November's Fall Economic
Statement capping the deficit at C$40.1 billion - or about 1.4% of
GDP - in the current fiscal year.
The government is expected to overshoot this deficit by around C$20
billion, which will further push up debt servicing costs, said
Robert Asselin, vice president of trade international policy at
Business Council of Canada, adding the government would miss its
fiscal goals by a big margin.
"If you want to get out of a hole, first stop digging it deeper,"
said John Manley, a former Liberal politician who served as Canada's
finance minister between 2002 and 2003, on the government's spending
binge.
"I think they need to be held to account for what they're committing
future governments to spend."
($1 = 1.3578 Canadian dollars)
(Reporting by Promit Mukherjee, editing by Steve Scherer and Aurora
Ellis)
[© 2024 Thomson Reuters. All rights
reserved.]
This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content.
![](http://archives.lincolndailynews.com/2024/Mar/05/images/ads/current/ldn_smallsda_BUSINESSMAG_2023.png) |