Ahead of Budget 2022, Liberals eye more spending as inflation fears grow

Fresh budget spending could be risky at a time when inflation is already running at a 30-year high, say experts ahead of the federal budget.

Canada’s Liberals find themselves in a bind ahead of this week’s budget: the economy has recovered from the pandemic, yet Prime Minister Justin Trudeau has pledged billions in new stimulus that could further fuel runaway inflation.

Trudeau’s Liberals will present their 2022 budget on Thursday, just seven months after promising $78 billion in new spending in a re-election campaign.

Much of that, expected to be spread over five years, has not yet been budgeted.

But fresh fiscal spending could be risky at a time when inflation is already running at a 30-year high. If too broad, measures could fuel further price increases and end up hurting lower-income Canadians.

“When you look at the impact of this elevated inflation on lower-income households, clearly they are hurting,” said Rebekah Young, director of fiscal and provincial economics at Scotiabank.

“But at the same time, from an economic perspective, there’s a risk that if you put even more money at the problem, it can create more pressures.”

Young said major new spending initiatives should be set aside for the near term, even though total government revenues are expected to be higher than previously forecast due to higher inflation-linked tax revenue.

But that may be easier said than done.