In November, Canada experienced a widening budget deficit compared to the same period last year. While tax revenue saw a solid gain, this increase was partly offset by a rise of over 30% in debt-financing charges and the payment of jobless benefits.
According to the Department of Finance's monthly fiscal monitor publication, the budget deficit for November amounted to 4.01 billion Canadian dollars, equivalent to $2.98 billion. This marked an increase from the shortfall of 3.38 billion Canadian dollars recorded in the year-ago month.
Looking at the April-to-November period, the budget deficit widened significantly to 19.14 billion Canadian dollars, compared to a deficit of 3.55 billion Canadian dollars during the same period last year.
Canada's Finance Minister, Chrystia Freeland, has made a commitment to limit the budget deficit for this fiscal year to 40 billion Canadian dollars, which is 1.4% of the country's gross domestic product (GDP). Additionally, Freeland has outlined plans to reduce the deficit-to-GDP ratio in the upcoming 2024-25 fiscal year and ensure that deficits remain below 1% of GDP starting in 2026-27.
Business Council of Canada Urges Government to Cut Spending
Last week, the Business Council of Canada issued a warning that Finance Minister Chrystia Freeland and Prime Minister Justin Trudeau should accelerate the pace of annual spending cuts in order to meet their fiscal targets. The Council noted that Trudeau, who is currently facing struggles in public opinion polls with an election looming over a year away, may need to take more assertive measures to control spending.
Bank of Canada Governor Tiff Macklem echoed this sentiment during a press conference, stating that government spending nationwide is anticipated to increase by up to 2.5%. Macklem emphasized that such a rate of spending growth would not alleviate inflationary pressures, but rather add to them.
In November, total revenue experienced a significant 13.3% increase compared to the previous year. This boost was primarily driven by substantial rises in personal income, sales, and payroll tax receipts. Meanwhile, government spending on various programs and benefits surged by 12.9% during the same month. This increase reflects higher payouts for the elderly, as well as a notable spike of 31.2% in the number of unemployed individuals receiving benefits.
Public debt charges also rose by 35.1% year-on-year due to higher interest rates. Despite this, the Bank of Canada maintained its benchmark interest rate at 5% this week, indicating its commitment to keep rates steady until there is substantial evidence of a slowdown in underlying inflation.
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