Canada's budget leans towards bigger spending rather than fiscal restraint that would help firms over the longer term, and the government may go further astray next year before an election, the head of one of the country's largest business groups told MNI.

Smaller firms will see some relief from a plan to refund CAD2.5 billion of carbon taxes while other changes to capital gains levies will help some smaller firms and hurt some medium-sized ones, said Dan Kelly, president of the Canadian Federation of Independent Business. While he agrees that it's useful for Finance Minister Chrystia Freeland to keep her "anchor" of a CAD40 billion shortfall this year, he said that masks spending with a short-term focus.

“Small firms know that today’s deficits are tomorrow’s taxes, and we are seeing signs of that now,” he said. The budget calls for about CAD18 billion of tax measures over the next five years even with revenue boosted by strong growth and inflation.

“It is deeply worrisome that the government has not laid out, even with tax hikes, a pathway back to balance,” he said. The projections go out five years and show a CAD20 billion shortfall at the end of that period.

ACROSS THE BOARD SPENDING

Freeland's budget touted Canada having some triple-A credit ratings and a plan that lowers the deficit and debt as a share of GDP in coming years. Much of the spending is really investment to strengthen the economy according to the government, a view Kelly disagrees with.

“Spending increases have been across the board, there has been almost no prioritization,” he said. The growth of civil service employment is another way this is being seen, he said.

Provincial governments have also had some loose fiscal policy and this may put further pressure on the public healthcare systems they manage, he said.

“We are still living off the credit card even though the pandemic is in the rear-view mirror,” Kelly said. His group has almost 100,000 members, has hosted BOC Governor Tiff Macklem, and regularly consults with the government on economic policy.

ELECTION SPENDING NEXT YEAR

With the Bank wanting to see sustained weakening of inflation before cutting interest rates, Kelly said the budget won't make a big difference to firms struggling with higher costs. The benefit of the carbon tax rebate is blunted for example by planned hikes to payroll taxes, he said.

“I don’t think it’s going to ease the affordability challenges facing small businesses,” he said. Canada for the last several months has reported more firms shutting down than being opened up, Kelly said.

A final concern for business is an election due in 2025 that means next year's budget could be even more expansionary, Kelly said. “Typically when you run into an election that’s when you spend more, not less” and that seems to be the pattern here, he said.