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

Red arrow shows the existing warehouse that is home to a variety of specialized equipment used by the Capital Region Emergency Services Telecommunications (CREST). The service provider is looking for a new home that will protect the equipment in the event of an earthquake or other natural disaster. (Google Maps)
CREST telecoms look to find a post-seismic facility in Greater Victoria

The move will better protect equipment vital to its 50 emergency service clients across the CRD

(Black Press Media file photo)
FRESH AND LOCAL: Greater Victoria farm markets ready to greet shoppers

A list of markets on the go this spring and summer, right into fall

A client and a staff member embark on an art project at Oak Bay United Church. (Christine van Reewyk/News Staff)
VIDEO: Oak Bay group of adults with developmental disabilities promotes community inclusivity

Victoria Community Connections moved to Oak Bay late last year

Graeme Wright is the owner of Hullabaloo, a new ice cream and coffee food truck serving patrons at the Red Barn on West Saanich. (Photo by Megan Atkins-Baker/News Staff).
VIDEO: Cool treats, warm bevvies a specialty for new Saanich food truck

Hullabaloo owner Graeme Wright passionate about blending green space with sustainability

Nathan Watts, a member of the Tseshaht First Nation near Port Alberni, shares his story of substance use, a perspective he said isn’t seen enough. (Photo courtesy of Nathan Watts)
Public shaming, hate perpetuates further substance use: UVic researcher

Longtime addict Nathan Watts offers a user’s perspective on substance use

t
How to tell if a call from ‘CRA’ is legitimate or a scam

Expert says it’s important to verify you really are dealing with the CRA before you give out any info

A person receives a COVID-19 vaccine at a vaccination clinic run by Vancouver Coastal Health, in Richmond, B.C., Saturday, April 10, 2021. THE CANADIAN PRESS/Jonathan Hayward
More than 75% of B.C. adults have 1st dose of COVID vaccine

The federal government has confirmed a boost in the Moderna vaccine will be coming later this month

Airport ground crew offload a plane carrying just under 300,000 doses of the single-shot Johnson & Johnson COVID-19 vaccine which is developed by the Janssen Pharmaceutical Companies at Pearson International Airport during the COVID-19 pandemic in Toronto on Wednesday, April 28, 2021. THE CANADIAN PRESS/Nathan Denette
1st batch of Johnson & Johnson vaccines won’t be released in Canada over quality concerns

The vaccines were quarantined in April before they were distributed to provinces

Terry Mazzei next to a truck after it was struck by lightning, with him inside, on Wednesday afternoon, June 9. He walked away from the incident without injury and the truck sustained only mild damage; a blown front tire and newly broken gas gauge. (Wendy Mazzei photo)
Vancouver Island man walks away unscathed after lightning strike

VIDEO: ‘We like to think that his dad was watching over him’

The rainbow flag flies beside the Canadian flag outside the University of the Fraser Valley’s Chilliwack campus on June 26, 2020. Monday, June 14, 2021 is Flag Day, and also June is Pride Month. (Jenna Hauck/ Chilliwack Progress file)
Unofficial holidays: Here’s what people are celebrating for the week of June 13 to 19

Flag Day, Garbage Man Day, International Panic Day all coming up this week

The courthouse in Nanaimo. (News Bulletin file)
Nanaimo man, already in jail, found guilty of sexual abuse of sons

Man previously sentenced for sexual interference involving girl in Nanaimo

British Columbia-Yukon Community News Association’s 2021 Ma Murray Awards were handed out during a virtual ceremony on Friday, June 10. (Screen grab)
Black Press Media winners take gold at B.C. and Yukon journalism awards

Publications received nods in dozens of categories

Forty sled dogs were seized by the BC SPCA from a Salmo kennel in February. A recent ruling has decided the dogs won’t be returned. Photo: Gounsil/Flickr
BC Farm Industry Review Board rules against Salmo kennel after 40 sled dogs seized

Spirit of the North Kennels was also ordered to pay BC SPCA $64,000

Prime Minister Justin Trudeau greets campers while visiting McDougall, Ont. on Thursday, July 19, 2018. THE CANADIAN PRESS/Frank Gunn
71% of B.C. men say they’d prefer to go camping with Trudeau: survey

Most British Columbians with plans to go camping outdoors say they’d prefer to go with Trudeau or Shania Twain

Most Read