CANADA'S FEDERAL BUDGET LIKELY TO UP TAXES TO STICK TO FISCAL GOALS

By Promit Mukherjee

OTTAWA (Reuters) - Canadian Finance Minister Chrystia Freeland is likely to raise taxes and re-apportion money in her budget speech on Tuesday to fund billions of dollars of new schemes to maintain her fiscal guardrail, according to a source and analysis of government finances.

A source aware of the contents of the budget speech told Reuters on Monday the Freeland budget document will reveal a way to tax the wealthiest people.

Prime Minister Justin Trudeau and his Liberal government have been on a spending spree but he earlier told reporters he will not increase taxes on the middle class.

His expenses on government employee salaries, grants, subsidies and capital expenditure have surpassed last year's levels in the first ten months of this year.

Meanwhile, in the last two weeks, his top ministers announced a flurry of measures from the budget, committing billions of dollars to tackle a housing crisis as his government tries to win back voters shifting loyalty to the opposition.

"I do worry that all of these measures are going to show up in terms of bigger deficits for even longer," said Pedro Antunes, chief economist at Conference Board of Canada, an independent think tank.

In the Fall Economic Statement, a form of mid-term budget, in November Freeland had laid out three main fiscal anchors.

One was to cap the fiscal deficit at C$40.1 billion ($29.13 billion) in the 2023-24 fiscal year - at about 1.4% of GDP. Second, to lower debt as a share of GDP for the 2024-25 fiscal year relative to its November estimate and keep the ratio declining thereafter. And finally, to keep the deficit from exceeding 1% of GDP from 2026-27.

Freeland, who will present the budget to parliament on Tuesday at 4:00 p.m. EDT (2000 GMT), told reporters last week the government was committed to the fiscal guideposts.

Robert Asselin, senior vice president of policy at Business Council of Canada, said that to meet the fiscal goals the government will have to resort to tax hikes.

Freeland will also have to reallocate money to fund these schemes and still meet the fiscal anchors, he added.

Rebekah Young, vice president at Scotiabank Economics, said in a note last week that the government has already promised around C$43 billion in various new schemes out of which nearly C$26 billion will directly impact the budget bottomline.

"There is a reasonable chance that they add on even more new spending... while announcing new targeted taxation measures to force the math," she said.

Trudeau, however, will need the backing of the smaller, left-leaning New Democrats, who are keeping the minority Liberal government in power in exchange for increased spending on social security and healthcare measures.

Its leader Jagmeet Singh hinted at a briefing on Monday that a tax on big companies and the wealthy might be in the offing in the budget.

But Trudeau, during his address at a gathering at the Canadian Chamber of Commerce in Ottawa on Monday said: "Our government will make these investments in a responsible way."

($1 = 1.3768 Canadian dollars)

(Reporting by Promit Mukherjee; Editing by Josie Kao)

2024-04-16T10:11:28Z dg43tfdfdgfd