Finance Minister Chrystia Freeland responds to questions from MPs after she delivered the federal budget in the House of Commons in Ottawa on Monday April 19, 2021. THE CANADIAN PRESS/Sean Kilpatrick

Finance Minister Chrystia Freeland responds to questions from MPs after she delivered the federal budget in the House of Commons in Ottawa on Monday April 19, 2021. THE CANADIAN PRESS/Sean Kilpatrick

Rising interest rates could dampen stimulus impact from federal budget, PBO says

The Bank of Canada is expected to raise its trendsetting interest rate before the end of next year

The parliamentary budget officer is pouring cold water on the economic fires from the government’s latest spending plan, saying that an expected rise in interest rates should temper the amount of stimulus from the Trudeau Liberals’ budget.

The Liberals have said their budget plan unveiled in April, and currently being scrutinized by parliamentarians, would create thousands of jobs and pull the country out of the economic hole the pandemic has dug.

The Opposition Conservatives contend the effects won’t be as widespread as the Liberals tout, pointing to warnings from the budget officer Yves Giroux himself that rising price pressures and expected increases in interest rates could add to federal costs.

Taking into account rising rates, Giroux now estimates the budget could bump economic growth this year by 0.6 percentage points above what he previously forecasted, shouldered by consumer spending, as well as residential and business investment.

He also estimated that the budget’s measures would create 89,000 more net new jobs by the end of 2025 compared to the path Giroux saw for the labour market before the budget’s unveiling.

As the economy recovers, Giroux expect the Bank of Canada will raise its trendsetting interest rate before the end of next year from the rock-bottom level of 0.25 per cent where it has been as since March 2020 at the onset of the pandemic.

Giroux foresees the central bank raising the rate by half a percentage point in the second half of 2022, and rising thereafter until it hits 2.25 per cent, which would affect rates charged on things like mortgages and business loans.

Higher interest rates “will dampen the stimulative impact” from the budget, Giroux said, meaning government revenues won’t get the bump they need to pay for measures and the costs to pay down the debt will also go up.

Giroux estimated that budget deficits over the next five years will in total be $117.1 billion more than his pre-budget forecasts, which he said suggested that only a small portion of the nearly $140 billion in new spending the budget proposed would be offset by economic growth.

While the budget estimated a deficit in the last fiscal year of $354.2 billion, Giroux estimates the figure will clock in at $370.9 billion as a result of unprecedented spending to counter the financial fallout from COVID-19.

The report landed hours after Finance Minister Chrystia Freeland gave a stern defence of her spending plan under hours of questioning by opposition parties in the House of Commons.

On Wednesday night, Freeland said the budget was a significant investment towards long-term growth for the country, pointing in particular to the pledge for a national child-care system that aims to help parents, particularly women, gain a better foothold in the job market.

Later Thursday, she was scheduled to appear before a Senate committee on the government’s budget bill.

Conservative finance critic Ed Fast said Giroux’s report supports what his party has been saying about the increased debt and fiscal risk from the Liberals’ spending spree.

“The Liberal budget completely missed the mark on key figures on revenues, debt, deficit, and the cost to Canadians of the Liberal debt,” Fast said. “It’s clear that Canadian’s can’t afford more of the same from the Trudeau Liberals.”

Separately Thursday, the government tabled updating spending estimates in the House of Commons for the current fiscal year that started in April. The documents outlined $41.2 billion in new spending, of which MPs will have to vote on $24 billion.

Among the measures captured in the documents is the budget’s $1.5 billion top-up to help cities quickly build affordable housing and a similar amount for the Public Health Agency of Canada for medical research and COVID-19 vaccine development.

There is also $1.7 billion for $500, one-time payments this summer to old age security recipients 75 and older. New Democrats have pushed for the payments to be expanded to all OAS recipients.

Jordan Press, The Canadian Press


Like us on Facebook and follow us on Twitter.

economy

Just Posted

A Grade 8 class at L.A. Matheson Secondary. March 2021. (Photo: Lauren Collins)
B.C.’s return-to-school plan good, but Surrey teachers hope there is room for adjustments

Surrey school district to receive $1.76M of the $25.6M provincial pandemic-related funding

Surrey Fire Service battled a dock fire along the Fraser River late Friday night (June 18). It was on Musqueam Drive, near Industrial Road, around 10:45 p.m. (Photo: Shane MacKichan)
Fire engulfs pier on Surrey side of the Fraser River

Pier has reportedly been unused for a long time

Marco Mendicino, Minister of Immigration, Refugees and Citizenship during a press conference in Ottawa on Thursday, May 13, 2021. THE CANADIAN PRESS/Sean Kilpatrick
Canada to welcome 45,000 refugees this year, says immigration minister

Canada plans to increase persons admitted from 23,500 to 45,000 and expedite permanent residency applications

Emily Steele holds up a collage of her son, 16-year-old Elijah-Iain Beauregard who was stabbed and killed in June 2019, outside of Kelowna Law Courts on June 18. (Aaron Hemens/Capital News)
Kelowna woman who fatally stabbed teen facing up to 1.5 years of jail time

Her jail sentence would be followed by an additional one to 1.5 years of supervision

Cpl. Scott MacLeod and Police Service Dog Jago. Jago was killed in the line of duty on Thursday, June 17. (RCMP)
Abbotsford police, RCMP grieve 4-year-old service dog killed in line of duty

Jago killed by armed suspect during ‘high-risk’ incident in Alberta

The George Road wildfire near Lytton, B.C., has grown to 250 hectares. (BC Wildfire Service)
B.C. drone sighting halts helicopters fighting 250 hectares of wildfire

‘If a drone collides with firefighting aircraft the consequences could be deadly,’ says BC Wildfire Service

A dose of the Pfizer-BioNTech COVID-19 vaccine is pictured at a vaccination site in Vancouver Thursday, March 11, 2021. THE CANADIAN PRESS/Jonathan Hayward
NACI advice to mix vaccines gets varied reaction from AstraZeneca double-dosers

NACI recommends an mRNA vaccine for all Canadians receiving a second dose of a COVID-19 vaccine

A aerial view shows the debris going into Quesnel Lake caused by a tailings pond breach near the town of Likely, B.C., Tuesday, Aug. 5, 2014. THE CANADIAN PRESS/Jonathan Hayward
Updated tailings code after Mount Polley an improvement: B.C. mines auditor

British Columbia’s chief auditor of mines has found changes to the province’s requirements for tailings storage facilities

A North Vancouver man was arrested Friday and three police officers were injured after a 10-person broke out at English Bay on June 19, 2021. (Youtube/Screen grab)
Man arrested, 3 police injured during 10-person brawl at Vancouver beach

The arrest was captured on video by bystanders, many of whom heckled the officers as they struggled with the handcuffed man

Kalyn Head, seen here on June 4, 2021, will be running 100 kilometres for her “birthday marathon” fundraiser on July 23. (Jenna Hauck/ Chilliwack Progress)
Woman’s 100-km birthday marathon from Chilliwack to Abbotsford will benefit Special Olympics B.C.

Kalyn Head hopes run raises awareness, advocates for inclusion of people with intellectual disabilities

Most Read