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On April 16th the Liberal Government is set to release the 2024 federal budget. James Orlando, Director and Senior Economist with TD, speaks with Kim Parlee about the key themes he’s expecting and the implications for the economy.
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*On April 16, the liberal government is set to release the 2024 federal budget. Already, we've been getting pre-budget announcements, mainly focusing on housing. And my next guest has co-authored a budget preview called Restraint in the Time of Inflation. James Orlando is senior economist with TD and joins us now. It doesn't feel like a lot of restraint. I feel like I'm reading headlines every five minutes.
* Yeah. When we were doing the analysis of what to expect in this budget, we were looking at the economy has been holding up fine. The bottom hasn't fallen out of it. Inflation has remained elevated. What this means is there's been more economic growth and more revenue is coming into the government. Now, that means more cash in their pockets.
* The question is, and what they've been saying is, we're going to be restrained, we're going to be we're going to be careful of how we spend money because we have this money in this pocket. But what happens for a government when they actually have that money. Do they keep it in their pocket? Is it burning a hole in their pocket? Or are they actually going to spend it?
* And pretty much ever since we wrote that report, every day the government's come out with a new announcement saying, you know, here's a new policy. Here's something else we're going to address in the economy. Here's how else we're going to help. So they might be talking a lot about restraint in the upcoming budget, but everything we're hearing right now is they're looking-- get ready for more spending to be coming.
* I mean, just to list it off, and you talk about it even in your piece-- which came out, I think, in March-- that spending on programs is far hotter than anticipated. And that even preceded, the AI announcement, which is not a big number, but you know, 2.4 defense. I kind of did a quick calculation. I think it's 8 billion over, a number-- more sooner than later, I'll put it that way. And then housing 22.5 billion. Like they're ratcheting it up.
* It's a lot of spending, right? And I think what we're talking about, with respect to how spending has come in over the last year, so we got-- in the last fall, we got the fall economic statement, which says, OK, we're going to try to make sure our budget deficit stays at this $40 billion for the current fiscal year. Now we have trackers for this. And every month we get more data to say, OK, how are the government's budgets coming in?
* And every single month, we get more information. And that more information tells us that the government is spending more money than even the government expected just a few months ago. And so that sets us up. How much more money are they going to have available to themselves if they're already spending so much already without these new policies? All the policies you mentioned aren't even included in this.
* Budget-- come next week, we're wondering what's going to happen. How are they even going to be able to meet their current targets with their intentions to spend so much going forward?
* OK. So what is going to happen then?
* Well, so what we're expecting is that all these policies, which have been coming in daily, are going to be added up. We're going to see, obviously, housing-related policies. Most of the policies we've seen are related to how do we get more purpose-built, rental apartments, new housing, how do we get the infrastructure around housing to be developed? We have the Pharmacare Program. We have the Defense Budget Program.
* All of this adds up to more spending. Now my expectation is that this will not be spending for the current year, but rather it's going to be pushed out. It's going to be elongated. Announced now and we're going to spread it out to lessen the fiscal burden on the government so that things don't look that bad with respect to them meeting their fiscal targets, which is to make sure that the debt to GDP ratio doesn't explode higher and to make sure that over the long term, the amount of deficit relative to the size of the economy is less than 1%.
* And you still think that's achievable given what we're hearing at this point?
* It's possible. So Chrystia Freeland came out and said that they will be making their targets. So you can take her at her word for that saying that this is what they're expecting. Now, the government knows more than we know with respect to their own finances right now. We get the budget. That's when we find out what the government finances are. Now, it is possible for them to get under these targets. Absolutely. It'll just be interesting to see how they do their fiscal maneuvering to be able to make it work.
* Yeah. Are there are already concerns about-- you talked about how the economy is doing a bit better, which means that the government is reaping in more. Are there any concerns they could do more to reap in more, in terms of tax measures and those types of things to increase revenues?
* Yeah. We haven't heard anything with respect to tax measures. And usually that's not something you would leak ahead of time.
* Yes.
* Now, I guess a lot of people are concerned that they're going to be higher taxes. We've seen in the past where the government has gone for certain industries, to be able to get more tax revenues. There's nothing specific in this that we have identified that we're like, OK, this is definitely going to happen, but I know that everyone out there is probably going to be watching.
* Oh, is something happening? So we're going to be carefully watching that just like everyone else is.
* Yeah. And I think also this all depends on-- this is somewhat of an election budget. So it will not be relevant if the government is not there to fulfill upon it if that happens.
* Yeah. And I think one thing that you mentioned-- that's a good way of phrasing it too, like the pre-election budget. They don't want to spend too much ahead of this budget. And they don't want to do anything that's going to anger too many potential voters. So they're going to have this budget and they're going to have the budget next year as well right before the election.
* So how do they want to set this up such that they can be viewed most favorably in the eyes of Canadians, such that they are doing their best efforts to try to improve the economy, improve the Canada as a whole? And I think they're trying to-- they're throwing a bunch of darts at different targets trying to make things work with respect to pharmacare, with respect to defense, with respect to housing.
* I think that's all moving in the right direction. But this is very much a budget that we're expecting to frame the government in a positive light so that they can do their best job at getting re-elected.
[MUSIC PLAYING]
* Yeah. When we were doing the analysis of what to expect in this budget, we were looking at the economy has been holding up fine. The bottom hasn't fallen out of it. Inflation has remained elevated. What this means is there's been more economic growth and more revenue is coming into the government. Now, that means more cash in their pockets.
* The question is, and what they've been saying is, we're going to be restrained, we're going to be we're going to be careful of how we spend money because we have this money in this pocket. But what happens for a government when they actually have that money. Do they keep it in their pocket? Is it burning a hole in their pocket? Or are they actually going to spend it?
* And pretty much ever since we wrote that report, every day the government's come out with a new announcement saying, you know, here's a new policy. Here's something else we're going to address in the economy. Here's how else we're going to help. So they might be talking a lot about restraint in the upcoming budget, but everything we're hearing right now is they're looking-- get ready for more spending to be coming.
* I mean, just to list it off, and you talk about it even in your piece-- which came out, I think, in March-- that spending on programs is far hotter than anticipated. And that even preceded, the AI announcement, which is not a big number, but you know, 2.4 defense. I kind of did a quick calculation. I think it's 8 billion over, a number-- more sooner than later, I'll put it that way. And then housing 22.5 billion. Like they're ratcheting it up.
* It's a lot of spending, right? And I think what we're talking about, with respect to how spending has come in over the last year, so we got-- in the last fall, we got the fall economic statement, which says, OK, we're going to try to make sure our budget deficit stays at this $40 billion for the current fiscal year. Now we have trackers for this. And every month we get more data to say, OK, how are the government's budgets coming in?
* And every single month, we get more information. And that more information tells us that the government is spending more money than even the government expected just a few months ago. And so that sets us up. How much more money are they going to have available to themselves if they're already spending so much already without these new policies? All the policies you mentioned aren't even included in this.
* Budget-- come next week, we're wondering what's going to happen. How are they even going to be able to meet their current targets with their intentions to spend so much going forward?
* OK. So what is going to happen then?
* Well, so what we're expecting is that all these policies, which have been coming in daily, are going to be added up. We're going to see, obviously, housing-related policies. Most of the policies we've seen are related to how do we get more purpose-built, rental apartments, new housing, how do we get the infrastructure around housing to be developed? We have the Pharmacare Program. We have the Defense Budget Program.
* All of this adds up to more spending. Now my expectation is that this will not be spending for the current year, but rather it's going to be pushed out. It's going to be elongated. Announced now and we're going to spread it out to lessen the fiscal burden on the government so that things don't look that bad with respect to them meeting their fiscal targets, which is to make sure that the debt to GDP ratio doesn't explode higher and to make sure that over the long term, the amount of deficit relative to the size of the economy is less than 1%.
* And you still think that's achievable given what we're hearing at this point?
* It's possible. So Chrystia Freeland came out and said that they will be making their targets. So you can take her at her word for that saying that this is what they're expecting. Now, the government knows more than we know with respect to their own finances right now. We get the budget. That's when we find out what the government finances are. Now, it is possible for them to get under these targets. Absolutely. It'll just be interesting to see how they do their fiscal maneuvering to be able to make it work.
* Yeah. Are there are already concerns about-- you talked about how the economy is doing a bit better, which means that the government is reaping in more. Are there any concerns they could do more to reap in more, in terms of tax measures and those types of things to increase revenues?
* Yeah. We haven't heard anything with respect to tax measures. And usually that's not something you would leak ahead of time.
* Yes.
* Now, I guess a lot of people are concerned that they're going to be higher taxes. We've seen in the past where the government has gone for certain industries, to be able to get more tax revenues. There's nothing specific in this that we have identified that we're like, OK, this is definitely going to happen, but I know that everyone out there is probably going to be watching.
* Oh, is something happening? So we're going to be carefully watching that just like everyone else is.
* Yeah. And I think also this all depends on-- this is somewhat of an election budget. So it will not be relevant if the government is not there to fulfill upon it if that happens.
* Yeah. And I think one thing that you mentioned-- that's a good way of phrasing it too, like the pre-election budget. They don't want to spend too much ahead of this budget. And they don't want to do anything that's going to anger too many potential voters. So they're going to have this budget and they're going to have the budget next year as well right before the election.
* So how do they want to set this up such that they can be viewed most favorably in the eyes of Canadians, such that they are doing their best efforts to try to improve the economy, improve the Canada as a whole? And I think they're trying to-- they're throwing a bunch of darts at different targets trying to make things work with respect to pharmacare, with respect to defense, with respect to housing.
* I think that's all moving in the right direction. But this is very much a budget that we're expecting to frame the government in a positive light so that they can do their best job at getting re-elected.
[MUSIC PLAYING]
