The Federal government is betting that its modest deficit and strong oil prices will enable the unemployment rate to stabilize at 5.5 % despite the Bank of Canada‘s mistaken decision to embrace a series of interest rate rises as a misguided weapon against supply chain rises in prices and the inflation rate. But what is the projected rate of inflation ? The budget projects it as 3.9 % rise in the CPI in 2022-23 and 2.4 % in 2023-24. There is a risk in this policy approach that the Bank of Canada will have a stronger negative impact than they anticipate. Mistaken expectations are an economic fact of life. We shall see what happens over the next year.
There are also a number of good things in the budget including a dental services support program, which is unfortunately income tested, an opening initiative in the long term battle to ensure quality housing for as many people as possible and a strong fiscal anchor in the debt to GDP ratio projected to be 45.1%, increased spending on defense and more aid to Ukraine.