Canada’s federal Finance Minister unveiled Budget 2024 on April 16th, showcasing a significant increase in gross new spending compared to pre-budget expectations. This surge in spending was partially counterbalanced by substantial taxation measures, resulting in a mixed net impact.
The budget injects a short-term stimulus into the economy through substantial new spending initiatives. However, it also introduces complexities by simultaneously providing and retracting funds. While net new spending amounts to 0.4% of GDP over the next two years, the gross outlays to Canadians total a much larger $22.5 billion (0.7% of GDP), offset by a reduction of $9.5 billion from growth drivers. This comes in addition to the $44 billion in incremental spending announced by provinces in recent weeks.
The budget’s implications extend to the Bank of Canada, complicating its task. The soft inflation data included in the budget could lead to complacency regarding potential inflationary pressures, especially with an anticipated housing market rebound and increased potential buyers post-budget.
The allocation of new spending appears broad, with a gross total of $56.8 billion distributed across various “priorities.” The new Housing Plan, accounting for only a sixth of the new outlays, is among the focused areas. Other allocations include military spending, investments in AI, pharmacare, Aboriginal investments, community spending, and a new disability benefit.
Taxation measures are expected to generate a $21.9 billion offset, notably through a significant increase in the capital gains inclusion rate for individuals and corporations.
The net cost of new measures in the budget amounts to $34.8 billion over the planning horizon. Economic momentum in the near term provides additional offsets of $29.1 billion, maintaining a fiscal path similar to the Fall Update. The projected FY24 deficit aligns at $40 billion (1.4% of GDP), gradually decreasing to $20 billion (0.6% of GDP) by FY29. Debt is forecasted to decline moderately as a share of GDP over the horizon.
While the fiscal plan addresses critical priorities such as the Housing Plan, AI investments, and Indigenous spending, it also introduces significant new taxation measures that may impact confidence and competitiveness in Canada’s landscape.
The budget’s impact on triggering an election seems unlikely, but it sets the stage as Canadians anticipate potential polls within the next 12–18 months. The ongoing support from fiscal measures is expected to continue, avoiding a sudden cessation of spending initiatives.
