Will Budget 2023 make life more affordable for Canadians? Here’s what experts say – National

The 2023 federal budget sees the Liberals raise spending plans and pay due attention to affordability concerns, but experts say the proposal will affect everyday Canadian finances and the country’s economic trajectory. I’m not convinced that

The Economist told Global News that Finance Minister Chrystia Freeland is in a tough spot for the 2023 budget.

Canadians have struggled to make ends meet for months amid cooling but still high inflation and rapidly rising interest rates. But with an economic slowdown and recession looming, the government was also tasked with setting aside some funds to avoid overspending and restimulating inflation.

Freeland said Tuesday that the 2023 budget shows “fiscal restraint” while providing “targeted inflation relief to those who need it most.”

But Pamela George, a financial literacy counselor for women, said her spending plans for 2023 are “subpar” when viewed through an affordability lens.

“There is nothing to write home about,” said the founder of Ottawa-based Sand Dollar Financial Literacy Counseling.

Budget measures like the so-called food rebate, which adds an average GST rebate of $467 for a family of four and $234 for a Canadian, is not enough to offset the sharp rise in food prices. . As for mortgage rates and rent, George says clients struggle to keep pace.

She admits that “every dollar counts,” but told Global News that kickbacks don’t help Canadians “in a meaningful way.”

Alongside grocery rebates, the budget includes a pledge to crack down on “junk fees” (concert tickets, airfare, additional costs charged for food delivery before checkout), support low-income households, and introduce codes. It included proposals for tax reform to The act of directing lenders to help Canadians with inflated mortgage costs.

But George says he wished there was more “solid stuff” in the budget and fewer promises to change.

“When you hear things like, ‘Let’s do this,’ or, ‘We’re looking into this,’ you feel stuck,” she says.

Global News asked Canadians to share their thoughts on whether the 2023 budget will help with the affordability challenge.

Many of the responses received by email showed a common trend of disappointment at the lack of new support for the elderly and people with disabilities.

George said there was little optimism among her senior clients that federal assistance would save them from affordability concerns. They often find ways to increase their income, such as receiving regular payments from family members.

“Older people have had to resort to finding ways to make things work for themselves,” she says.

The budget also called for a crackdown on predatory lending and payday loans, capping the interest rates these services could offer, capping at $14 for every $100 borrowed.

Much of George’s work has to do with helping clients out of the debt cycle created when they took out payday loans during desperate times, such as the beginning of the COVID-19 pandemic. She doesn’t believe the government’s strategy to limit future vulnerability in this area will help clients who have been stuck trying to repay loans at exorbitant interest rates for years.

“I have clients who take payday loans, and this is not the light at the end of the tunnel for them,” she says.

Alicia McDonald, economist at Deloitte Canada, said despite how widely discussed concerns were directed toward the budget, with the exception of food rebates and a few “smaller initiatives,” the budget is affordable. It states that the price action was lacking.

“Given the inflationary pressures we are experiencing, it would have been nice to see some more targeted measures on the affordability front,” she says.

The federal government was under intense scrutiny towards the budget to avoid giving too much direct support to the Canadian people and inadvertently stimulating the economy by again increasing spending and inflation.

Still, the government had spending priorities to meet in relation to the supply and trust deal with the New Democrats. NDP leader Jagmeet Singh said he was “proud” that his party had “coerced” the Liberal Party on measures such as expanding dental care.

Ottawa’s 2023 budget projects even more deficits over the next five years compared to the fiscal situation outlined in the fall economic statement when the government’s books rebalanced over the same time frame. .

“Federal spending has grown to billions of dollars a year over the next five years, and we know that additional spending will stimulate demand in the economy. The concern about inflation is there,” McDonald said. says.

But despite its higher spending plans, McDonald’s doesn’t believe the 2023 budget will ultimately accelerate inflation “significantly.”

“Governments are going to thread a fine line by threading a needle and introducing some key policy initiatives while also being careful not to overstimulate an already overdemanded economy. I got it,” she says.

The federal government expects inflation to return to 3% in the third quarter of this year and 2% in the second quarter of 2024. This is largely “in line with” Deloitte’s own predictions, McDonald said.

Craig Alexander, president of Alexander Economic Views, said measures such as adding the GST may be “inflationary,” but the modest relief to low-income Canadians most affected by inflation is likely to leave liberals alone. It makes economic and political sense for us, he told Global News. .

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But that doesn’t mean increased spending hasn’t weighed heavily on the government’s books, he points out.

“The Trudeau administration has had a very difficult road in terms of delivering a budget that the Canadian people support, but it has also been non-inflationary,” says Alexander.

“And I think they did it, but they did it in a way that meant they ended up paying more of the government’s debt for the amount of money they had to borrow. .”

One party expected to keep a close eye on the 2023 budget is the Bank of Canada, which has factored the government’s spending plans into its inflation projections and thus interest rate forecasts. The central bank’s rate hikes have been conditionally suspended after more than a year of aggressive rate hikes, with the next decision and inflation forecast revision coming on April 12th.

RBC senior economist Josh Nye told Global News that the Bank of Canada recently suggested that higher-than-expected government spending would lead to “domestic demand.”He interprets it as a code for ‘inflationary pressure’

The liberal government’s COVID-19 support has likely dragged on too long, Nye said, adding to Canada’s currently overheated economy and decades-high inflation.

“The pandemic’s failure to properly scale fiscal policy has made the Bank of Canada’s job harder and was probably one of the reasons why it had to raise interest rates as aggressively as it had in the past year,” he said. says. .

Regarding the 2023 budget, Nye says he is unsure whether the federal government has stuck to its message of avoiding overstimulating the economy again.

“The finance minister has tried to position this as a financially prudent budget. say.

But will the government’s 2023 spending plan alone be enough to keep the Bank of Canada off the sidelines and lead to another rate hike in April? Economists speaking to Global News don’t think so.

McDonald said that factors that have weighed on price pressures in recent months have been the overall slowdown trend in the economy, and inflation is expected to lose even more momentum if a recession is expected.

“We expect this recession to be considerably shorter and milder than past recessions. It will help keep inflation in check and allow the Bank of Canada to start cutting interest rates,” she said. say.

Even if federal spending plans put pressure on the Bank of Canada to raise interest rates, uncertainty across the country’s borders is also pushing the central bank to avoid excessive tightening.

Recent turmoil in the global banking sector following the failure of the Silicon Valley Bank in the United States has led to concerns that rising borrowing costs could cause some financial institutions to fail and put them at risk of a deeper recession. is rising.

For example, the US Federal Reserve hiked rates by 0.5 percentage points last week, seemingly backing out of its more aggressive rate hike stance.

“It raised some hurdles for the Bank of Canada to resume tightening,” Nye said.

“As long as we get additional fiscal support from this budget, I don’t think it’s too important for the Bank of Canada to resume rate hikes because of this.”

— Using files from Anne Gaviola of Global News