The Canadian federal budget was passed by a two-vote margin that avoided a Christmas election.
The annual budget is focused partly on housing and infrastructure, but features a huge increase in defence spending.
“You have most departments seeing a 15 per cent cut in their spending over the next three years for operational spending in the next three years and defence seeing a massive 40 per cent increase in its budget, and these are of roughly equal value,” said David Macdonald, the senior economist at the Canadian Centre for Policy Alternatives.
MacDonald said it was a “substantial reallocation of funds” that was higher than even the Liberals and Conservatives expected.
Most of the budget seems to focus on the growing imposition from the U.S. government in the midst of high tensions between countries.
“This is a reaction to Trump, and what his priorities are is he wants to see us spending a lot more on defence,” MacDonald said. “We didn't have to do what he liked, but we certainly did in this budget.”
So far, life for average Canadians hasn't changed much, but those with problems are facing cuts from essential services.
“Our international development budget will be cut substantially. There were big hits on the environment front, so as the greener homes grant for energy efficiency for people's homes, or the two billion trees planted fund, the public transit fund. These are all casualties of this budget,” MacDonald said.
“These are the programs we know about, and so there’s plenty of programs that we don't know about,” he said.
Even though programs are being cut, the office of the Parliamentary Budget Officer (PBO) projected a declining debt-to-GDP ratio. They also warned that Canada may be unprepared for unexpected crises.
“For example, if there are any kind of risks, another pandemic or a recession or anything like that, they have less room to maneuver those risks with the current fiscal framework that they have in place,” said the director of fiscal analysis at PBO, Kristina Grinshpoon.
One of the new developments from this budget is that the federal revenues are higher than expected.
The PBO said that the government entered the budget cycle with more wherewithal because the previous cycle ended with higher-than-average revenue.
“The revenue forecast came in a bit higher than what we were expecting, and that's largely because the 2024-2025 year came in higher than we're expecting,” said Grinshpoon
“We didn't have the public accounts; they came out only after the budget, and then, looking at the public accounts for the fiscal year 2024-2025, revenues came in stronger than we were expecting,” she said
The budget cut many things, but there is nothing that actually gets detailed. Indeed, many plans have AI implementations for office work.
“There's a lot of vague talk about efficiency and AI and so on, but not necessarily individual lines, individual budget lines saying look, these big ways to cut this program,” MacDonald said.
“That's really missing," he said. "We may see more of that in the coming months, particularly some of the spring departmental reports, but at this point, there's still a lot of programs, a lot of details we don't know about how these cuts are an impact to the programs that Canadians need,” he said
The cuts that former prime minister Steven Harper introduced in the early 2010s apparently had the same effect .
“The Harper cuts of the early 2010s are similar size in terms of percentage loss as we're seeing here,” Macdonald said.
“One of the outcomes of the Harper cuts was the Phoenix pay disaster, so they cut back substantially on the pay. The folks that ran the pay system turned the whole thing over to brand new technology in the hopes that technology could save money and be more productive, and it crashed and burned, and we spent billions fixing it,” he said.
Diarra Sourang, the director of Economic Analysis at the PBO, says it's impossible to really understand the budget without acknowledging the economic climate in which it was built.
“I think it's important to understand the context in which the budget is developed, and currently, it's moderating economic growth. So there are some economic pressures there, and that environment is what shapes the government's fiscal room. So basically, what they have the ability to invest in and for how long,” she said.
Sourang said the government's ability to deliver on its commitments depends heavily on how the economy performs in the next couple of years.
“So if the nominal GDP will stay as is, by definition, you'll be increasing your debt-to-GDP ratio,” she said.
For the average Canadian, the minutiae and effects of this budget remain to be seen in the coming months and years.
