Former Bank of Canada Governor David Dodge said the increase in spending in the federal government’s new budget will make the central bank’s battle against rising prices more difficult.
“It — along with the provincial budgets — is really not very helpful to the Bank of Canada in terms of dealing with inflation,” Dodge said Thursday in an interview on BNN Bloomberg Television. “That’s unfortunate.”
Finance Minister Chrystia Freeland’s budget, unveiled on Tuesday, proposes billions in new outlays on housing, defense and other items over the next few years, with slightly higher deficits the government had previously forecast.
Provincial governments have gone in a similar direction. Ontario, Quebec and British Columbia, which together have about three-quarters of Canada’s population, have all released plans that include significantly higher borrowing.
Freeland’s budget document carries the title “Fairness for every generation” — a nod to younger Canadians who’ve been frustrated about the high cost of living and the difficulty of getting into the housing market. Dodge questioned that slogan.
“It’s these young voters that are going to be saddled with the debt going forward,” he said.
The budget anticipates C$480.5 billion ($349 billion) in federal program spending this fiscal year, an increase of about C$14 billion compared with November projections from the finance minister.
Credit rating firm DBRS Morningstar said the spending boost may be “counterproductive” as the Bank of Canada tries to bring inflation back to its 2% target.
The government is expecting 3.8% growth in nominal gross domestic product this year, versus a previous forecast of 2.4%, the agency said in a report Thursday. That will give a boost to government tax revenue, but “the budget siphons off these projected gains and channels them towards increased spending initiatives, adding to the already expansionary stance of most provincial budgets this season, which could contribute to inflationary pressures,” it said.
CMP
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