OTTAWA – Parliamentary Budget Officer puts cold water on economic fires in government’s latest spending plan, says planned interest rate hike should temper the amount of stimulus in Trudeau’s Liberal budget .

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

Opposition conservatives argue the effects will not be as widespread as the Liberals claim, pointing to warnings from budget director Yves Giroux himself that rising price pressures and planned rate hikes interest could increase federal costs.

Given the rate hike, Giroux now estimates that the budget could boost economic growth this year by 0.6 percentage points above what it had previously forecast, supported by consumer spending, as well as through residential and commercial investments.

He also estimated that the budget measures would create 89,000 more net new jobs by the end of 2025 compared to the route Giroux saw for the job market before the budget was unveiled.

As the economy recovers, Giroux expects the Bank of Canada to raise its interest rate before the end of next year from the lowest level of 0.25% where it was since March 2020 in start of the pandemic.

Giroux predicts that the central bank will hike the rate by half a percentage point in the second half of 2022, then increase thereafter until it reaches 2.25%, which would affect the rates applied to things like mortgages and business loans.

Higher interest rates “will soften the stimulus impact” of the budget, Giroux said, which means government revenues won’t get the bump they need to pay for the measures and the costs of repaying them. debt will also increase.

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

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

The report landed hours after Finance Minister Chrystia Freeland sternly defended her spending plan after hours of questioning by opposition parties in the House of Commons.

On Wednesday evening, Freeland said the budget was a significant investment in the country’s long-term growth, particularly highlighting the promise of a national child care system that aims to help parents, especially women, to gain a better foothold in the workplace. 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 said about rising debt and financial risk stemming from the Liberal spending spree.

“The Liberal budget completely missed the target for key figures on income, the debt, the deficit and the cost to Canadians of Liberal debt,” said Fast. “It is clear that Canadians cannot afford more of the same from the Trudeau Liberals.

Separately on Thursday, the government tabled in the House of Commons updated spending estimates for the current fiscal year, which began in April. The documents described $ 41.2 billion in new spending, of which MPs will vote out of $ 24 billion.

Some of the measures reflected in the documents include the additional $ 1.5 billion to help cities build affordable housing quickly and a similar amount for the Public Health Agency of Canada for Medical Research and Research. the development of the COVID-19 vaccine.



There is also $ 1.7 billion for $ 500, one-time payments this summer to Old Age Security recipients 75 and over. New Democrats pushed for payments to be extended to all OAS recipients.

This report by The Canadian Press was first published on May 27, 2021.

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