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CIBC and RBC On the Budget

CANADA
  • CIBC: Federal fiscal policy will be tightening on balance and only marginally less so than it would have if there were no new tax and spending measures unveiled. There is however a question whether more progress could have been made in shrinking the deficits.
  • Program spending shows restraint, down 3pts to 15.8% GDP this year and to 14.7% GDP in 26/27, but it’s higher than pre-pandemic which required the higher revenues projected.
  • RBC: Net new spending is lower than it could have been (C$31B over forecast vs PBO estimates of commitments costing C$49B through 2025-26) and strong revenues help keep the deficit and debt-to-GDP on a downward trajectory.
  • The divergence comes from an omission for national pharmacare (despite a commitment to pass legislation in 2023) and heavily watered-down defence spending (C$2B/year vs C$16B for NATO’s 2% GDP target).
  • Still some concern though as still introducing significant new spending, some of it into the current inflationary environment. Structural spending commitments risk deteriorating the fiscal picture in the outer years, and not leaving much buffer for downside domestic economic risks.
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