Canada’s Freeland faces big spending demands and a dark economic outlook

Speaking on Tuesday at a cabinet retreat ahead of parliament’s return next week, Chrystia Freeland said she would “continue to take a fiscally prudent approach” as the government prepares its budget for the fiscal year starting April 1.

She reiterated a promise not to raise inflation, which could force the Bank of Canada to raise interest rates even higher, but acknowledged that spending requests are rising.

The energy industry is seeking billions in public money for carbon-capture projects to help meet emissions targets and keep Canada competitive, as the US implements green subsidies under the Inflation Reduction Act.

“This is a once-in-a-generation moment,” Freeland told reporters in Hamilton, Ontario.

Meanwhile, provincial governments want billions to help fix Canada’s health care system. A huge increase in federal health payments to the provinces could lead the government to stray from the path laid out for balanced books within five years.

Trudeau said at an event in Hamilton, Ontario, on Wednesday that his government would meet heads of state in Ottawa on February 7 for a working meeting on health care. He said the gathering would be used to establish a framework on data and health information and to begin work on bilateral agreements with the provinces.

The prime minister said his government would be able to help Canadians through the current turbulent environment while maintaining the country’s financial health and without undermining the Bank of Canada’s efforts to fight inflation.

“By being targeted in our support and investments that drive sustainable economic growth for years to come, we can support Canadians with the money the Bank of Canada has placed on us to reduce inflation,” Trudeau said. ” ,

For his part, Freeland acknowledges that helping industry and repairing the medical system, while keeping overall spending under control, “are challenging things to do at the same time, and that’s the balance we’re trying to find in the budget.” I’m going to find out.” ,

‘Covid Recession’

He also acknowledged that Canada, which like other advanced economies is trying to reduce inflation through high interest rates, could face significant challenges in the coming year.

“We still don’t know for sure how the plane will land,” she said.

Earlier Tuesday, cabinet heard a presentation on the economy from a panel including Carolyn Wilkins, former No. 2 at the Bank of Canada, and Kevin Milligan, an economics professor at the University of British Columbia.

Speaking to reporters outside the meeting, Milligan said the government should exercise caution on spending while the central bank works to bring down inflation.

“If you move too fast, the Bank of Canada is just going to ratchet things up and make the interest rate environment more challenging,” he said.

But he added that the increase in health care spending would likely happen over several years — and so it would not hurt the short-term inflation outlook.

Still, Wilkins warned that Canadians could be in for some pain in 2023 as the economy slows and unemployment rises, which he said is necessary to keep prices down.

“Whether we’ll have a hard landing or not, nobody knows,” Wilkins said. “But I wouldn’t rule it out.”