The federal Liberal government faces tough choices as it crafts a 2023 budget in a high-interest rate, high-inflation environment, a former finance minister said Thursday.
John Manley, now a senior advisor at Bennett Jones, spoke with BNN Bloomberg about the challenges Finance Minister Chrystia Freeland faces as she crafts a budget that makes good on spending commitments and applies “fiscal restraint” needed to bring down high inflation.
“She’s got some tough decisions to take,” Manley said in a television interview.
Freeland has said she plans to take a “fiscally prudent approach,” but Manley referenced big spending priorities like the promised billions of dollars in health-care transfers to provinces and funding that many see as necessary for Canada to keep up with the U.S. in the transition to a carbon-neutral economy.
Those spending considerations are weighing on government as the Bank of Canada continues its fight to bring inflation down to its target two per cent. The central bank held rates at 4.5 per cent on Wednesday, after eight consecutive hikes that began last March.
“There are some big spending requirements, all in the context of … the Bank of Canada trying to put a foot on the brakes, while the fiscal positioning is kind of like putting the foot on the gas pedal,” Manley said.
A formal date for the tabelling of the budget has not been set, and it’s unclear exactly where Freeland will apply fiscal restraint to her spending plan.
However, as high inflation has left many Canadians struggling to keep up amid high prices for necessities like food, Manley said one of the “hardest parts” of governing for elected officials like Freeland is having to consider dropping some government priorities in order to support people through tough times.
“It’s clear that in this economy, because there are people that are falling out at the bottom, it’s going to be important to make some choices to see that their needs are addressed. That’s the kind of society we’ve tried to build,” he said.
“But in order to do that, you (Freeland) may not be able to do some of the other things that you aspire to doing, and we’ll see how she balances those choices.”
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