Two things struck me in Chrystia Freeland’s economic statement, two struggles that are fundamental.
First, the statement predicts that the fight against inflation will last a year longer than expected. Next, Chrystia Freeland quotes a 120-year-old speech by Wilfrid Laurier to illustrate the fight of our time, namely the decarbonization of the economy.
Last April, the federal budget predicted that inflation would only be temporary, that Canada would fall back in 2023 within the range desired by the Bank of Canada, i.e. a rate oscillating between 1 and 3%.
Six months later, we are far from the mark. The economic statement of Mr.me Freeland now forecasts that the Consumer Price Index (CPI) will eventually climb 6.8% this year before falling to 3.5% next year, in 2023.
It is therefore only in 2024 that inflation would fall back into the range of the central bank, more precisely at 2.1% according to the statement, which is in line with private sector forecasts.
Let’s hope that this scenario, also predicted by the Bank of Canada, comes true. Otherwise, households will have to wait longer before interest rates deflate, and mortgage and line of credit payments follow the same trend.
And Wilfrid Laurier in all this, who was Prime Minister of Canada from 1896 to 1911? I’m getting there, wait.
With inflation falling, the economic statement predicts that interest rates on government treasury bills – one of the key short-term benchmarks – will decline by 0.8 percentage points in 2023 and 0.5 point in 2024. That would be a great relief.
Is it realistic? Maybe. And then, the crossing of the desert will have been rather short, all in all. But Chrystia Freeland and her economists at the Department of Finance, chafed by the unpredictability of the economy, have added a pessimistic scenario to their forecasts this year.
According to this gloomy scenario, the inflation rate would resist the onslaught of the Bank of Canada, maintaining an average of 5.3% in 2023, rather than 3.5%. This scenario would color all future deficit projections. Ouch!
This deficit, precisely? Thanks to economic growth and inflation, which have inflated state revenues, it was lining up at just $23 billion this year (2022-2023)…before Ottawa decided to spend more.
All told, and adding the new measures to help the less fortunate pay for their price-boosted groceries, among other things, the deficit will reach $36.4 billion this year (or $49.1 billion under the pessimistic scenario).
That’s still a lot, but $52.9 billion was forecast in last April’s budget. And who remembers the 328 billion from 2020-2021?
Of note, public debt charges will increase from $24.5 billion last year (2020-2021) to $43-44 billion per year over the next few years. Our pandemic deficits, combined with the rise in interest rates, will therefore cost us approximately $20 billion per year, which is not negligible.
And Wilfrid Laurier in all this? Well, there it is. In her speech, Chrystia Freeland evokes the remarks made by the former Canadian Prime Minister in 1903 about the transcontinental railway, which would eventually connect Canada from east to west.
“We cannot wait, because time does not wait; we can’t wait because in these days of marvelous development, wasted time is doubly wasted,” Wilfrid Laurier said at the time.
“We cannot wait, because the conditions of our national life are changing at the moment. It would be mad to ignore it and criminal to neglect it. »
Criminal to neglect it? Chrystia Freeland draws a parallel between the development of the railway and the transition to carbon neutrality, which “requires an industrial transformation on a scale comparable to that of the Industrial Revolution itself”, says the minister.
In this regard, the government has chosen to provide Canada with a $15 billion “Growth Fund”, the details of which were disclosed in the economic statement.
This fund, considered strategic, will support companies in the deployment of the technologies necessary for decarbonization. It seeks to mitigate the risks that limit the injection of private capital.
It comes in response to many other similar funds in the world, particularly in the United States, and whose goal is to secure energy supplies and fight against climate change, in particular.
In the United States, this incorrectly named fund Inflation Reduction Act (IRA) is endowed with a sum of 369 billion US, to which is added a loan guarantee program of 390 billion.
Across the Atlantic, the European Union is injecting the equivalent of 26 billion US, the Netherlands, 13 billion and Australia, 6 billion.
According to the statement, the Growth Fund is a response to other global funds, notably the United States, to allow Canada to remain competitive.
It is quite possible that such a fund will displease the Conservatives, who are campaigning to stop new spending. It is quite possible that it is not the optimal solution for decarbonizing the economy, that it is insufficient, taken in isolation.
But one thing is certain, unless you are a hardened climatosceptic, our living conditions will continue to change and “it would be crazy to ignore it and criminal to neglect it”.