Economists say Liberal-NDP deal raises deficit, inflation alarm bells
Prime Minister Justin Trudeau's surprise political deal with the smaller left-leaning New Democrats will lead to heftier deficits and threatens to upend the Liberal government's promise to rein in runaway inflation, economists said.
Trudeau on Tuesday announced a rare written "supply-and-confidence" agreement that will see the NDP prop up his minority government until 2025 in exchange for more social spending.
Top of the list is a dental-care program for low-income Canadians and a national prescription drug plan, both of which will likely be costly, permanent spending initiatives, economists said. Details of the two programs should emerge in the federal budget due to be presented next month.
With the Canadian economy already at capacity and price pressures mounting, incremental spending - even if merited - could complicate efforts to keep inflation expectations moored, said Rebekah Young, director of fiscal and provincial economics at Scotiabank.
"The finance minister risks further undermining Ottawa's credibility in its commitment to tackling inflation," she said.
Young expects the pact, which has been denounced by the main opposition Conservatives, will lead to an additional $15 billion-$20 billion in government spending over the life of the three-year deal and potentially $40 billion in total by fiscal 2026-2027.
The jump in tax revenue resulting from surging inflation will likely mask much of the new spending in the near term, she said, but the deal could add half a percentage point to structural deficits over the medium term.
Fitch Ratings stripped Canada of one of its coveted triple-A credit ratings in June 2020. S&P Global Ratings and Moody's Investors Service still give Canadian debt their highest ratings.
The federal government's COVID-19 pandemic support programs have already pushed Canada's debt-to-GDP ratio to a projected peak of 48.0% in 2021/2022 from 30.9% in 2018/2019. It could decline more slowly from there due to the increased spending.
"It does look like it would open the pocket books at the federal level," said Pedro Antunes, chief economist at the Conference Board of Canada.
Canada, like other countries globally, is grappling with red-hot inflation, which hit a three-decade high of 5.7% in February. At the same time, businesses are scrambling to hire enough workers to meet booming demand.
New federal dental and prescription drug programs would require more specialized workers, who may demand higher wages, which could then create another round of inflation, Antunes said.
"We can start getting to that vicious spiral that we don't want to be in," Antunes said.
DEFENCE SPENDING
The Liberals pledged $78 billion in stimulus over three years during last year's election campaign. The NDP's platform had priced a national drug plan at $38.5 billion over five years and $11 billion for dental coverage.
Spending under the deal will likely look quite different.
With Canada's economy firing on all cylinders, analysts say the centre-left Liberals should be focused on balancing the budget rather than adding stimulus so businesses do not grow concerned about the possibility of higher taxes.
"The right path is to grow the economy to pay for new spending measures – not the other way around," said Robert Asselin, senior vice president of policy at the Business Council of Canada.
Adding to swelling expenses is the response to Russia's invasion of Ukraine, which may prompt Canada to boost defence spending.
"Our investments in our Canadian Armed Forces will continue to increase and we will have more to say about this at the appropriate time," said Trudeau, speaking at a summit in Brussels to address the Ukraine crisis.
Trudeau said his deal with the NDP will not impact defence spending plans.
IN DEPTH
'Anger that I haven't seen before': Singh harassment incident puts renewed spotlight on politicians' security
NDP Leader Jagmeet Singh's recent encounter with protesters at an Ontario election campaign stop, where he was verbally harassed, is casting a renewed spotlight on politicians' security, with Singh telling CTV News that he's witnessing a level of anger he hasn't seen before.

Settled debate or not? Canadian politicians weigh in on U.S. Supreme Court abortion rights leak
The stunning leak of a U.S. Supreme Court draft opinion to strike down the landmark Roe v. Wade decision on abortion rights seized political attention in Ottawa on Tuesday. In the House of Commons, MPs' persisting differing views were on display after a symbolic push to affirm abortion rights failed, and the Conservative caucus were told not to comment on the leak.
Where the six Conservative leadership candidates stand on key policy issues
Six candidates are on the ballot to become the Conservative Party's next leader. In holding rallies, doing media interviews, and participating in debates, each contender has been releasing details of their policy platforms. Here's a snapshot of where the candidates stand on the economy, housing, climate, defence and social issues.
Liberals' deal with NDP will keep Trudeau minority in power for 3 more years
The federal Liberals and New Democrats have finalized an agreement that, if maintained, would keep Prime Minister Justin Trudeau's government in power until June 2025, in exchange for progress on longstanding NDP priorities. Trudeau announced Tuesday morning that the confidence-and-supply agreement has been brokered, and is effective immediately.
Meet the six candidates on the ballot to be the next Conservative leader
Conservative Party members will be electing their new leader in September. Six candidates have secured their place on the ballot, after meeting all of the party's eligibility requirements. Here's a snapshot of who each candidate is, their political histories, and what kind of campaign they're running.
Opinion
OPINION | Don Martin: Premier Jason Kenney deserved a better death
There's a lesson for Canada's political leaders in the short life and quick death of Jason Kenney as premier of Alberta, writes Don Martin in an exclusive opinion column for CTVNews.ca.

OPINION | Don Martin: Ford on cruise control to victory in Ontario while Alberta votes on killing Kenney as UCP leader
It's becoming a make-or-break week for two Conservative premiers as their futures pivot on a pair of defining moments, writes Don Martin in an exclusive opinion column for CTVNews.ca.
OPINION | Don Martin: This is the candidate who stole the show in my view
In an exclusive column for CTVNews.ca, Don Martin weighs in on the Conservative leadership debate highlights and fumbles in Edmonton on Wednesday night.
OPINION | Don Martin: The thunder of overreaction as Rolling Blunder wheels toward Ottawa
As was the case with the Freedom Convoy, it’s the organizers of Rolling Thunder who are giving the event's modest purpose some ominous overtones, writes Don Martin in an exclusive opinion piece for CTVNews.ca.
OPINION | Don Martin: In the heart of Liberal-owned Toronto, an unlikely Conservative rock star takes the stage
Conservative leadership frontrunner Pierre Poilievre is attracting big crowds to large halls in unlikely locations. And if his early romp lasts, he'll be impossible to beat, writes Don Martin in an exclusive opinion column for CTVNews.ca.
ANALYSIS & INSIGHTS
CTVNews.ca Top Stories
Police inaction allowed Texas massacre to continue with catastrophic consequences: experts
The decision by police to wait before confronting the gunman at Robb Elementary School in Uvalde was a failure with catastrophic consequences, experts say. When it was all over 19 students and two teachers were dead.

Indigenous B.C. filmmaker says he was refused entry on Cannes red carpet for his moccasins
A Dene filmmaker based in Vancouver says he was "disappointed" and "close to tears" when security at the Cannes Film Festival blocked him from walking the red carpet while dressed in a pair of moccasins.
Putin warns against continued arming of Ukraine; Kremlin claims another city captured
As Russia asserted progress in its goal of seizing the entirety of contested eastern Ukraine, President Vladimir Putin tried Saturday to shake European resolve to punish his country with sanctions and to keep supplying weapons that have supported Ukraine's defence.
Police inaction moves to centre of Uvalde shooting probe
The actions — or more notably, the inaction — of a school district police chief and other law enforcement officers have become the centre of the investigation into this week's shocking school shooting in Uvalde, Texas.
'What happened to Chelsea?' Vancouver march demands answers in Indigenous woman's death
Around a hundred people gathered at noon Saturday at the empty Vancouver home where Chelsea Poorman’s remains were found late last month to show their support for her family's call for answers and justice.
Canada to play for gold at men's hockey worlds after victory over Czechia
Canada and Finland won semifinal games Saturday to set up a third straight gold-medal showdown between the teams at the IIHF world hockey championship.
Tear gas fired at Liverpool fans in Champions League final policing chaos
Riot police fired tear gas and pepper spray at Liverpool supporters forced to endure lengthy waits to get into the Champions League final amid logistical chaos and an attempt by UEFA and French authorities to blame overcrowding at turnstiles on people trying to access the stadium with fake tickets on Saturday.
48K without power one week after deadly storm swept through Ontario, Quebec
One week after a severe wind and thunderstorm swept through Ontario and Quebec, just over 48,000 homes in the two provinces were still without power on Saturday.
Explainer: Where do hydro poles come from?
The devastating storm in southern Ontario and Quebec last weekend damaged thousands of hydro poles across the two provinces. CTVNews.ca gives a rundown of where utility companies get their hydro poles from, as well as the climate challenges in the grid infrastructure.