By Promit Mukherjee
OTTAWA (Reuters) -Canada’s Finance Minister Chrystia Freeland declined to say on Tuesday whether the country would achieve its deficit target for the last fiscal year, fueling economists’ expectations that the Liberal government missed its target.
Freeland, speaking less than a week before she is due to present a fiscal update in the form of a mini budget, stressed Canada’s debt-to-gross-domestic-product ratio was the most important financial metric and said that target would be achieved.
While economists agreed the debt-to-GDP ratio was an important measure, missing the deficit target could damage the credibility of Prime Minister Justin Trudeau and his Liberal government, they said.
Trudeau is lagging in polls ahead of an election that must be held by late October 2025.
“You can’t pick and choose fiscal anchors as you go, and renege on a commitment you made only a year ago,” said Robert Asselin, senior vice president of policy at the Business Council of Canada.
A breach could eventually increase borrowing costs for the federal and provincial governments, affect growth and raise questions about the government’s ability to manage its finances, economists said.
“Maintaining a declining debt-to-GDP ratio is our fiscal anchor. That is important. That is how we maintain sustainable public finances,” Freeland said at a press conference. She declined to answer additional questions about the deficit.
She said the government will meet its debt-to-GDP target when she updates the numbers next week.
Economists and opposition leaders have been demanding Freeland release the later-than-usual review of spending and revenue numbers for last year, 2023-24. Some predict Canada has blown past its deficit goal and will have a hard time meeting fiscal targets in future years.
“By not continuing to reinforce fiscal credibility, that puts upper pressure on borrowing costs and ultimately reduces overall economic activity,” said Randall Bartlett, senior director of Canadian economics at Desjardins.
A year ago, after Canada failed to meet its fiscal objectives twice, Freeland proposed a set of three new fiscal anchors.
They were to maintain the 2023-24 deficit at or below C$40.1 billion ($28.31 billion), lower the debt-to-GDP ratio from 42% last year and maintain a declining deficit-to-GDP ratio this year while keeping it below 1% in 2026-27.
Dustin Reid, vice president and chief strategist, fixed income at Mackenzie Investments, said if the deficit is not contained then over time it could affect the Canadian bond market and the Canadian dollar also.
“The fact of the matter is this government is losing control of public finances and Canadians are noticing,” Asselin said.
($1 = 1.4166 Canadian dollars)
