Canada experienced a wider budget deficit in November compared to the previous year, as increases in debt-financing charges and jobless benefits offset a solid gain in tax revenue.
According to the Department of Finance's monthly fiscal monitor publication, Canada's budget deficit for November amounted to 4.01 billion Canadian dollars ($2.98 billion), up from a shortfall of 3.38 billion Canadian dollars in the same month last year. The deficit for the April-to-November period also saw a significant increase, reaching 19.14 billion Canadian dollars compared to a deficit of 3.55 billion Canadian dollars during the same period last year.
Canadian Finance Minister, Chrystia Freeland, has made a commitment to limit the budget deficit for this fiscal year to 40 billion Canadian dollars, which is equivalent to 1.4% of the country's gross domestic product (GDP). Furthermore, Freeland has announced plans to maintain a declining deficit-to-GDP ratio in the upcoming 2024-25 fiscal year and ensure that deficits remain below 1% of GDP starting in 2026-27.
Canada's Business Council warns of the need for faster spending cuts
The Business Council of Canada has issued a warning to Finance Minister Chrystia Freeland and Prime Minister Justin Trudeau, urging them to accelerate their pace of annual spending cuts in order to meet fiscal targets. This comes as Trudeau faces challenges in public opinion polls ahead of an election scheduled for more than a year away.
Concerns over rising government spending
Bank of Canada Governor Tiff Macklem expressed concerns about the upward trajectory of government spending, stating that it is expected to increase by up to 2.5%. This level of spending is likely to contribute to inflationary pressures rather than alleviate them.
Revenue and outlays
According to November data, there was a notable increase in total revenue, which saw a 13.3% rise compared to the previous year. This growth was driven by significant increases in personal-income, sales, and payroll tax receipts. On the other hand, government outlays on programs and benefits experienced a 12.9% surge during the same month. This increase can be attributed to higher payments made to an aging demographic indexed to inflation, as well as a substantial rise of 31.2% in the number of unemployed individuals receiving benefits.
Public-debt charges on the rise
Public-debt charges have seen a significant increase of 35.1% compared to the previous year, largely due to higher interest rates. The Bank of Canada has decided to maintain its benchmark interest rate at 5% for now, indicating that it will only consider adjusting it when there is sustained evidence of a slowdown in underlying inflation.
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