On federal budget, Macklem says 'fiscal track has not changed significantly'

OTTAWA -

Bank of Canada governor Tiff Macklem says Canada's fiscal position has "not changed significantly" following the release of the federal government's budget.

Despite the budget's new spending measures, Macklem pointed to increased revenue streams like taxation and higher-than-expected economic growth that should keep the government on its promised fiscal track.

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"The budget does respect the fiscal guardrails that the government put in place," Macklem said during a callback with reporters on the sidelines of the International Monetary Fund and World Bank spring meetings in Washington.

"Keeping the debt-to-GDP ratio on a declining track, and importantly keeping deficits below one per cent of GDP in future years, the budget also commits to those guardrails going forward and that is helpful."

The federal budget promises $39.2 billion in net-new spending, but the deficit was maintained at $39.8 billion for 2024-25, as projected in the fall economic statement. The deficit is expected to decline to $20 billion by 2028-29.

Macklem also noted the central bank did incorporate provincial budgets into its projections last week, with many provinces showing increased spending and deficits. The central bank will go through the recently released budget in greater depth and lay out the more detailed macroeconomic implications as part of its monetary policy report in July.

In March, annual inflation rose by 2.9 per cent, up from the 2.8 per cent increase in February. The jump in inflation was mostly caused by increased gas prices.

While the Bank of Canada projects the consumer price index to remain around three per cent for the first half of the year, before moving below 2.5 per cent by the end of 2024, it expects inflation to return to its target of two per cent by 2025.

The geopolitical situation in the Middle East and Ukraine remains the top focus of risk for the inflation outlook, with oil prices jumping overnight following news of Israeli retaliatory strikes in the Iranian city of Isfahan.

"I expect we will continue to see volatility as events play out, unfortunately that's inevitable," Macklem said. "If there is a spike in oil prices, that is something we will have to take into account."