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Economic update: A smaller-than-expected deficit due to inflation

Montreal, November 3, 2022 – The Montreal Economic Institute (MEI) reacted to the release of the federal government’s economic update earlier today.

“The federal government should show some humility before taking credit for the reduction of the deficit,” says Olivier Rancourt, economist at the MEI. “It’s not so much due to the responsible administration of public funds, but rather to the dramatic increase in tax revenues thanks to inflation being higher than expected.”

The government now estimates that the deficit will reach $36.4 billion for the 2022-23 fiscal year, an improvement of $16.4 billion compared to projections.

This reduction in the deficit is mainly attributable to an increase of $38.0 billion in tax revenues. Program spending projections are up 12.4 billion dollars compared to Budget 2022.

Also of concern is the rapid increase in interest payments on the debt. According to the public accounts, interest payments on the debt represented a cost of $24.5 billion in 2021-22.

The government expects these payments to cost taxpayers $34.7 billion this year, a 41.6% jump. Government projections show that this bill will hit $44.8 billion by 2027-28.

“Every dollar spent to service the debt is a dollar that will neither serve to fund services nor be returned to Canadian taxpayers,” says Mr. Rancourt. “The government has every reason to return to a balanced budget very quickly, before interest rates make it that much harder to do so.”

The government is expecting to balance the budget by 2027-28.

By the end of the year, the federal debt will reach $1,282.9 billion, or $32,954 per Canadian.

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The Montreal Economic Institute is an independent public policy think tank. Through its publications, media appearances, and advisory services to policy-makers, the MEI stimulates public policy debate and reforms based on sound economics and entrepreneurship.

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