Freeland pledges fiscal prudence to avoid feeding inflation even as demands for spending grow

Finance minister said she must show restraint because Canada’s economy is at risk of sliding into a recession

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Finance Minister Chrystia Freeland said Canada has a “once in a generation” moment to invest in infrastructure that will improve the delivery of health care and help combat climate change, but emphasized that she still must show restraint because the economy is at risk of sliding into a recession.

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Freeland made the comments after a meeting with her provincial and territorial counterparts in Toronto on Feb. 3. The main topics on the agenda were investments in the green transition and health funding for provinces, a long-standing issue that at times has created friction between the federal and provincial governments and one that was put into greater focus during the pandemic.

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Freeland acknowledged that the government walks a very fine line when it comes to delivering on these programs, arguing for the need for very targeted supports because governments must be wary of flaming inflation with too much fiscal stimulus.

“We’re very aware of the uncertainty in the global economy right now: Inflation is high and interest rates are high — things are tough for a lot of Canadians,” Freeland told reporters. “At the federal level, this is a time of real fiscal constraint. We know that one of the most important things the federal government can do to help communities today is to be like all of our responsibility, not to pour fuel on the fire of inflation and not to force them to raise rates.”

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Nonetheless, Freeland acknowledged that her Liberal Party campaigned on promises to spend more on health and the environment, saying that “we will honour those commitments.”

Freeland said she had not presented anything specific on the health-care front, and was transparent about the federal government’s fiscal constraints and investment pressures.

This comes after the federal government has spent over a year negotiating health-care transfers with the provinces. Premiers wanted the federal government to increase provincial funding by $28 billion a year, having Ottawa cover 35 per cent of health-care costs instead of its current 22 per cent.

Health care has emerged as a particular point of concern as hospitals have been overwhelmed and are continuing to grapple with ongoing COVID-19 cases. Quebec’s finance minister, Eric Girard, said a lot of these health-care transfer conversations depend on what the federal government will bring to the table when first ministers convene next week.

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“It’s time to see the numbers and to start talking about the numbers and parameters associated with the numbers,” Girard told reporters. “And as you know, we want Canada health transfers.”

The green transition and neutralizing Canada’s carbon emissions was a major theme in the federal budget in 2022. The fiscal plan included promises to reduce carbon emissions and build out infrastructure for electric vehicles and renewable energy sources, among other measures.

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Headline inflation was running at around six per cent in December, an improvement from the summer, but sill much faster than the Bank of Canada‘s target of two per cent.

Bank of Canada governor Tiff Macklem, who was also in attendance to discuss the slowing economic outlook, raised the policy rate a total of 4.25 percentage points — to 4.5 per cent — in a bid to cool demand and contain price pressures.

“It really is my responsibility, the federal government’s responsibility, not to do anything that pours fuel on the flames of inflation and forces the Bank of Canada’s hand,” Freeland said. “So, when you take those two things together: an environment of high inflation, high interest rates and a slowing economy — that is a constrained fiscal environment, and it means that we do need to behave with real fiscal responsibility even as we need to make these two big investments.”

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