Show Transcript
Ottawa released its 2023 federal budget aimed at building on Canada’s green energy transition while addressing cost-of-living concerns. Greg Bonnell speaks with Derek Burleton, Deputy Chief Economist at TD, about the government’s effort to balance spending demand with fiscal restraint.
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Speaker 1 [00:00:03] The 2023 federal budget, laying out more than $40 billion in new spending over the next six years. That includes new money for health care, also some inflation relief for families and initiatives for clean energy. There's a lot there. To help us break it down is TDI deputy chief economist Derek Belton. Derek, thanks for joining us. Let's start with this idea that this budget was not going to be one of great fiscal spending. What are you seeing in it?
Speaker 2 [00:00:30] It's one of great fiscal spending. You know, you mentioned 40, 50 billion spent. You know, that was pretty close to some of the whisper numbers ahead of the budget. But I think part of the confusing story is the minister was saying she was going to inject some restraint in this and there was about 7 billion in efficiencies are going to target, you know, lower consulting fees paid by the government. But, you know, the new stuff spends pretty big. I think if you look at spending per capita now, it's well over 10% higher than pre-pandemic. This follows a budget last year with 50 billion new measures. So, you know, it is a big budget. Now, when you look at the measures, a lot of these do make sense that we're known ahead of the budget, the health care transfers, provinces. These were all items that were either announced and were demanded by Canadians that the green tech money, of course, response to the Inflation Action Act in the US couldn't get away from that. We had to meet that. So when you go through a lot of these measures, you know they were needed. But the bottom line is spending is a challenge and the fiscal position is going to be a challenge for years to come.
Speaker 1 [00:01:45] You mentioned the fact that, of course, the Americans are going big when it comes to clean energy. US President Joe Biden was just here in recent days saying Canada has the minerals that the world needs for clean energy. We just have to get at them. So you talked about the clean energy initiatives. All in all, about $20 billion over the sort of projection of this budget of four and a half billion of that is just for manufacturing to try to incentivize some mining. Is that going to be enough for us to compete on the global stage?
Speaker 2 [00:02:11] You know, it's hard to say. I mean, so the government has used a combination of carrots and sticks that this budget leans more on the carrots. And that was exactly what was in the Inflation Reduction Act introduced south of the border. It's a big amount of money. I think when you start layering, spend over the past few last year's budget, the fiscal update, you are above that 50 billion. You needed to respond on a per capita basis. I think for Canada, the big challenge comes more not with the incentives but with the process. I think in particular you talk about critical areas being a huge opportunity for Canada to get in under the US tent to engage in supply chains. We've got natural potential here in Canada, but regulatory burden, this is a huge challenge and I'm not sure how much was in the budget and I'm shortening some of the timelines for getting project approval. So I think for Canada, you know, again, the money was I do consider this investment part of the budget. It's, as you mentioned, Greg, a good share of the new initiatives. Now, how do we get the money flowing and respond in that direction? And that's going to be our big challenge as a country.
Speaker 1 [00:03:22] In the near term, the budget is willing to admit, and they say that they rely on Bay Street economists to give them their economic projections. And they say there's a risk of a shallow recession this year So as to take a look some of the numbers they're laying out, there's a $40 billion deficit. They think real GDP for the year will come to about 0.3%, just about break even with maybe a shallow recession baked into all that. I guess what I'm trying to say is, are the numbers in here contingent on us escaping a harder landing for the economy?
Speaker 2 [00:03:50] Yeah, and that's my big worry. So, you know, when I look at the budget assumptions, I know they did do away with there was turbo allowance that used to be baked into the budget to help in the event of unforeseen downside risk. They don't really have that anymore. But when I look at their 2023 numbers are actually quite, quite cautious. Beyond that, they look reasonable. So the starting point does provide a bit of cushion. But in the event of a recession, that's that's my worry. The bigger deficits, you can argue there weren't a lot of tax increases in the budget above and beyond what we knew, which is a good thing. But that could just be delayed tax increases because the bigger deficits get tied to the spend, tied in part to the economic slowdown built in, you know, just leaves less wiggle room in the event we run to a hard landing. And that's the worry, I think when I look at the deficits, if I can live with them, in fact, I don't have a balanced budget. But now with the debt, higher interest costs hitting the books, if we do have a serious recession, then Canada won't be at nearly as good a position as it once was. And that's been something we've we've certainly had pounded our drum about being a triple-A credit rate country. But of course, if we go into a serious recession, that's going to be a serious challenge for them.
Speaker 1 [00:05:09] Derek Most of our conversations of late have been dominated by inflation. We've gotten this far without mentioning it, but there are targeted measures in here for families who are struggling with the high cost of living. This is what they're calling the grocery rebate alone, which is really through the GST mechanism, two and a half billion dollars. Are they striking the right tone here? Because there's concerns that if you try to help households with the inflationary burden, your help could be inflationary.
Speaker 2 [00:05:37] Yeah. You know, it's one time measure. You know, it's probably not going to be that inflationary. I guess my worry is that with all the provincial budget measures, start adding everything up, it gets to be a big near-term spend. But, you know, based on my expectations, I do. I did anticipate something. There's just so much pressure on government would have been a very tough choice. The fact it's one time I can live with it. It's not ideal as a share of the budget. It's not a huge amount to spend, as you point out. So you know the balance. Yes, In a perfect world, it wouldn't done, though.
Speaker 1 [00:06:12] When I was taking a look through the budget, Derek, and seeing all their projections for where they think we're going to be in the economy this year. They talked about CPI, consumer price index, inflation headline at least coming down to about three and a half percent at some point this year, not back down to the sweet spot, but getting closer. Do you agree with that assessment? Do you think that we're obviously working down on Headline? Can we get it down that far this year?
Speaker 2 [00:06:33] I think so. I you know, I'm comforted by some of the latest data on inflation. I think, again, one of the uncertainties is all the fiscal impulse coming through provincial and federal government during this budget season. Thank goodness some of the latest data inflation show some just the patient inflation pressures with the slowdown we've got built in with all the headwinds we're facing and some of the latest financial instability. You know, I do think there's a good chance that we get down to about three, three and a half, which is very much in line with the budget. So no qualms there.
Speaker 1 [00:07:09] Derek, appreciate your time, as always and helping us break all this down today.
Speaker 2 [00:07:13] Thank you.
Speaker 1 [00:07:14] That was TV deputy chief economist Derek Broughton helping us break down Budget 2023.
Speaker 2 [00:00:30] It's one of great fiscal spending. You know, you mentioned 40, 50 billion spent. You know, that was pretty close to some of the whisper numbers ahead of the budget. But I think part of the confusing story is the minister was saying she was going to inject some restraint in this and there was about 7 billion in efficiencies are going to target, you know, lower consulting fees paid by the government. But, you know, the new stuff spends pretty big. I think if you look at spending per capita now, it's well over 10% higher than pre-pandemic. This follows a budget last year with 50 billion new measures. So, you know, it is a big budget. Now, when you look at the measures, a lot of these do make sense that we're known ahead of the budget, the health care transfers, provinces. These were all items that were either announced and were demanded by Canadians that the green tech money, of course, response to the Inflation Action Act in the US couldn't get away from that. We had to meet that. So when you go through a lot of these measures, you know they were needed. But the bottom line is spending is a challenge and the fiscal position is going to be a challenge for years to come.
Speaker 1 [00:01:45] You mentioned the fact that, of course, the Americans are going big when it comes to clean energy. US President Joe Biden was just here in recent days saying Canada has the minerals that the world needs for clean energy. We just have to get at them. So you talked about the clean energy initiatives. All in all, about $20 billion over the sort of projection of this budget of four and a half billion of that is just for manufacturing to try to incentivize some mining. Is that going to be enough for us to compete on the global stage?
Speaker 2 [00:02:11] You know, it's hard to say. I mean, so the government has used a combination of carrots and sticks that this budget leans more on the carrots. And that was exactly what was in the Inflation Reduction Act introduced south of the border. It's a big amount of money. I think when you start layering, spend over the past few last year's budget, the fiscal update, you are above that 50 billion. You needed to respond on a per capita basis. I think for Canada, the big challenge comes more not with the incentives but with the process. I think in particular you talk about critical areas being a huge opportunity for Canada to get in under the US tent to engage in supply chains. We've got natural potential here in Canada, but regulatory burden, this is a huge challenge and I'm not sure how much was in the budget and I'm shortening some of the timelines for getting project approval. So I think for Canada, you know, again, the money was I do consider this investment part of the budget. It's, as you mentioned, Greg, a good share of the new initiatives. Now, how do we get the money flowing and respond in that direction? And that's going to be our big challenge as a country.
Speaker 1 [00:03:22] In the near term, the budget is willing to admit, and they say that they rely on Bay Street economists to give them their economic projections. And they say there's a risk of a shallow recession this year So as to take a look some of the numbers they're laying out, there's a $40 billion deficit. They think real GDP for the year will come to about 0.3%, just about break even with maybe a shallow recession baked into all that. I guess what I'm trying to say is, are the numbers in here contingent on us escaping a harder landing for the economy?
Speaker 2 [00:03:50] Yeah, and that's my big worry. So, you know, when I look at the budget assumptions, I know they did do away with there was turbo allowance that used to be baked into the budget to help in the event of unforeseen downside risk. They don't really have that anymore. But when I look at their 2023 numbers are actually quite, quite cautious. Beyond that, they look reasonable. So the starting point does provide a bit of cushion. But in the event of a recession, that's that's my worry. The bigger deficits, you can argue there weren't a lot of tax increases in the budget above and beyond what we knew, which is a good thing. But that could just be delayed tax increases because the bigger deficits get tied to the spend, tied in part to the economic slowdown built in, you know, just leaves less wiggle room in the event we run to a hard landing. And that's the worry, I think when I look at the deficits, if I can live with them, in fact, I don't have a balanced budget. But now with the debt, higher interest costs hitting the books, if we do have a serious recession, then Canada won't be at nearly as good a position as it once was. And that's been something we've we've certainly had pounded our drum about being a triple-A credit rate country. But of course, if we go into a serious recession, that's going to be a serious challenge for them.
Speaker 1 [00:05:09] Derek Most of our conversations of late have been dominated by inflation. We've gotten this far without mentioning it, but there are targeted measures in here for families who are struggling with the high cost of living. This is what they're calling the grocery rebate alone, which is really through the GST mechanism, two and a half billion dollars. Are they striking the right tone here? Because there's concerns that if you try to help households with the inflationary burden, your help could be inflationary.
Speaker 2 [00:05:37] Yeah. You know, it's one time measure. You know, it's probably not going to be that inflationary. I guess my worry is that with all the provincial budget measures, start adding everything up, it gets to be a big near-term spend. But, you know, based on my expectations, I do. I did anticipate something. There's just so much pressure on government would have been a very tough choice. The fact it's one time I can live with it. It's not ideal as a share of the budget. It's not a huge amount to spend, as you point out. So you know the balance. Yes, In a perfect world, it wouldn't done, though.
Speaker 1 [00:06:12] When I was taking a look through the budget, Derek, and seeing all their projections for where they think we're going to be in the economy this year. They talked about CPI, consumer price index, inflation headline at least coming down to about three and a half percent at some point this year, not back down to the sweet spot, but getting closer. Do you agree with that assessment? Do you think that we're obviously working down on Headline? Can we get it down that far this year?
Speaker 2 [00:06:33] I think so. I you know, I'm comforted by some of the latest data on inflation. I think, again, one of the uncertainties is all the fiscal impulse coming through provincial and federal government during this budget season. Thank goodness some of the latest data inflation show some just the patient inflation pressures with the slowdown we've got built in with all the headwinds we're facing and some of the latest financial instability. You know, I do think there's a good chance that we get down to about three, three and a half, which is very much in line with the budget. So no qualms there.
Speaker 1 [00:07:09] Derek, appreciate your time, as always and helping us break all this down today.
Speaker 2 [00:07:13] Thank you.
Speaker 1 [00:07:14] That was TV deputy chief economist Derek Broughton helping us break down Budget 2023.
