Freeland's budget has to tread a narrow path between competing demands for cash: sources

The 2023 federal budget, set to be unveiled on March 28, will focus on three main priorities: affordability measures, investments in the clean industrial economy and the new money promised to provinces for health care.

That's according to government sources familiar with the budget who are not authorized to speak publicly about it. But while ticking all three boxes would require billions of dollars in new spending, those sources acknowledge this year's budget will be constrained by a worsening fiscal situation caused by a global economic slowdown.

"Economic fundamentals are strong," said one senior government official. "But it's a much tighter fiscal landscape than immediately post-COVID, and tighter than (November's) Fall Economic Statement."

Inflation has eased since hitting a record high, mostly due to eight consecutive Bank of Canada interest rate hikes. But many Canadians, especially those getting by on low incomes, are still struggling with the cost of living.

"The federal government can't do everything. It can't solve it overnight. But people are still feeling their money doesn't go as far," said the official.

"So our thinking is, what is useful but will not exacerbate inflation? So on offer will be some things for people as a recognition of their anxieties and pressures they are under."

Expect those "things" to be much like the federal government's previous measures to address the cost of living, such as the doubling of the GST tax credit and the one-time rental housing top-up for low income renters.

Finance Minister Chrystia Freeland has spoken before about the need for a modern and robust industrial strategy for Canada and the transition to a green economy. Efforts to combine those two will be central to this year's budget — particularly the measures planned in response to the Inflation Reduction Act (IRA), which is expected to pump about $500 billion US into the United States' clean tech and manufacturing sectors.

"We can't afford to delay these investments just because of the (worsening) fiscal situation," said a second senior government official. "The question is not whether to do it, but how to do it."

The IRA is turning out to be an accelerant, driving countries around the world to transition to a clean economy and to compete for the investment dollars to pay for it.

"The United States' Inflation Reduction Act has rocked the global balance of power and it has lit a fire under all of the countries," said Merran Smith, founder of Clean Energy Canada, a think tank based at Simon Fraser University.

"It has changed the trajectory of energy and our economies from today to this new industrial approach. Some people are calling this the next industrial revolution."

Canada cannot afford to compete dollar-to-dollar against the U.S. Experts argue the federal government needs to be strategic and focus on the country's strengths.

"If you look at the last three budgets, there's a lot of money that has been announced in different funds," said Robert Asselin, senior vice president of policy at the Business Council of Canada and a budget director under former finance minister Bill Morneau.