Canada's Fiscal Policy: Surprising Resignation and a Larger Deficit than Expected

The recent economic policy situation in Canada has led to surprises. Canadian Prime Minister Justin Trudeau, known for his expansive fiscal measures, is facing a significantly larger budget gap than originally anticipated. The recently presented financial report reveals that the deficit last year amounted to 61.9 billion Canadian dollars—more than double the originally forecasted sum. This revelation came just hours after the unexpected resignation of Finance Minister Chrystia Freeland, who stepped down due to disagreements over spending policy. The so-called autumn economic report, which was significantly delayed this year, is now igniting speculation among economic experts about Canada's missed fiscal targets. Additional expenditures for indigenous commitments and pandemic-related costs drove the deficit to over 40.8 billion Canadian dollars, even without these extraordinary items. "There is currently no financial leeway, given the foreseeable risks to the Canadian economy regarding 2025," explains Pedro Antunes, chief economist at the Conference Board of Canada. The fiscal principles are intended to keep spending in check and serve as a buffer for future economic shocks to maintain the confidence of international investors. In November 2023, Freeland had assured that the deficit for 2023-24 would not exceed 40.1 billion Canadian dollars. While the target concerning the debt ratio to gross domestic product (GDP) was achieved, the deficit ratio to GDP rose to 2.1% instead of the projected 1.4%. A turbulent year awaits Canada, as the country seeks to drastically reduce the number of new immigrants—a measure parallel to the expected elections in October, with Trudeau's Liberal Party polling low. In addition, President-elect Donald Trump is threatening a 25% tariff if Canada does not take stronger measures against the flow of drugs and illegal immigration across the shared border.