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CANADA: Freeland Appears To Accept Higher Fiscal Deficit Tracking

CANADA
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  • Speaking to reporters in Ottawa, FM Freeland has said the government will meet its debt-to-GDP projection for FY 23-24 and will reduce the ratio over the medium term as it looks to maintain one of its fiscal anchors.
  • Tellingly, our reporter writes that she declined to answer several questions about whether she’d honour a pledge to limit deficits to C$40bn after the 2024 Budget showed a C$40bn deficit in FY23-24 before C$39.8bn in FY24-25 and then declining.
  • “A declining debt to GDP ratio is the guarantee, the numerical statement, of Canada’s fiscal sustainability,” Freeland said.
  • This comes ahead of the government’s long-awaited Fall Economic Statement due Monday (Dec 16).
  • Recall that the Parliamentary Budget Office in its Economic and Fiscal Update back in October projected a federal deficit of C$46.8bn for FY 24-25 and C$46.4bn for the current fiscal year so this is only really confirming existing tracking.
  • That estimate was prior to the government announcing a two-month GST/HST break which the PBO has costed at C$1.5bn in FY 24-25 (and potentially a further C$1.3bn on top of that) plus circa C$4.5bn for a debated $250 rebate to as many as 19 million Canadians in April.
  • Despite a likelihood of larger than previously budgeted deficits, a pledge to maintain a downward trajectory in the debt-to-GDP ratio looks to have modestly supported GoCs relative to Treasuries. Can-US yield differentials saw a step lower for the 2Y to new fresh multi-decade lows of -125bps whilst the 10Y differential remained at joint lows of -118bps. Monday's details will clearly be more important (plus any leaks between now and then) and of course the BoC decision tomorrow.
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  • Speaking to reporters in Ottawa, FM Freeland has said the government will meet its debt-to-GDP projection for FY 23-24 and will reduce the ratio over the medium term as it looks to maintain one of its fiscal anchors.
  • Tellingly, our reporter writes that she declined to answer several questions about whether she’d honour a pledge to limit deficits to C$40bn after the 2024 Budget showed a C$40bn deficit in FY23-24 before C$39.8bn in FY24-25 and then declining.
  • “A declining debt to GDP ratio is the guarantee, the numerical statement, of Canada’s fiscal sustainability,” Freeland said.
  • This comes ahead of the government’s long-awaited Fall Economic Statement due Monday (Dec 16).
  • Recall that the Parliamentary Budget Office in its Economic and Fiscal Update back in October projected a federal deficit of C$46.8bn for FY 24-25 and C$46.4bn for the current fiscal year so this is only really confirming existing tracking.
  • That estimate was prior to the government announcing a two-month GST/HST break which the PBO has costed at C$1.5bn in FY 24-25 (and potentially a further C$1.3bn on top of that) plus circa C$4.5bn for a debated $250 rebate to as many as 19 million Canadians in April.
  • Despite a likelihood of larger than previously budgeted deficits, a pledge to maintain a downward trajectory in the debt-to-GDP ratio looks to have modestly supported GoCs relative to Treasuries. Can-US yield differentials saw a step lower for the 2Y to new fresh multi-decade lows of -125bps whilst the 10Y differential remained at joint lows of -118bps. Monday's details will clearly be more important (plus any leaks between now and then) and of course the BoC decision tomorrow.