Commentary

Canada's 2024 Federal Budget: Fiscal Targets Remain Intact But Higher Spending Could Complicate BoC's Inflation Battle

Sovereigns

Summary

The Government of Canada (rated AAA with a Stable trend) tabled its FY23-24 budget (Budget 2024) on April 16. With elections on the horizon next year, the federal government has chosen to take advantage of a slightly improved economic outlook to move forward with increased spending in priority areas such as housing, healthcare, cost of living support, and defense. Key highlights include:

-- Although plans to balance are still absent, the budget maintains adherence to prior fiscal targets, with deficits and debt-to-GDP continuing a downward trend.

-- Revenue gains driven by an unexpected improvement economic outlook and tax increases will be more than offset by spending increases towards priority areas, such as housing, healthcare, and defense.

-- New measures, on net, could complicate the Bank of Canada's efforts to durably bring inflation down to the target.

“The budget siphons off economic gains and channels them towards increased spending initiatives, adding to the already expansionary stance of most provincial budgets this season,” says Apurva Khandeparker, Assistant Vice President, Global Sovereign Ratings. “The government may have one more budget prior to the next election, but the fiscal anchors in place now leave little room for big announcements next year.”

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