Trudeau's third term begins with a stronger-than-expected fiscal position to give him more space

New budget estimates released by Canadian Prime Minister Justin Trudeau show improved economic conditions and deficits were lower than expected, though tens of billions of dollars in campaign promises have not been taken into account.

Updates to fiscal data released in Ottawa on Tuesday show that Canada is expected to record a deficit of $144.5 billion ($112 billion) in the fiscal year beginning April 1, a shortfall of $154.7 billion forecast in April's budget. The final deficit of $327.7 billion in the previous fiscal year was also less than expected, compared with the previous forecast of $354.2 billion.

Better fiscal conditions reflect stronger revenue growth, partly due to higher oil prices.

For the ruling Liberal Party, which won re-election in September, the start of a third term is much better from a fiscal standpoint. That gives Trudeau and Treasury Secretary Chrystia Freeland more breathing room to fund their campaign promises without damaging their country's credibility or increasing their deficits. Widening the deficit could add another fire to already rising inflation.

"We know Canadians work hard to make a living and expect us to take care of their money," Freeland said in a speech to Parliament. "We know we have a responsibility to do the right thing for today and tomorrow."

The document, released Tuesday, is a simple update to the forecasts, not a "mini-budget" like the fiscal assessments of the past year. For example, it doesn't include most of the $78 billion in new spending promised by the Liberal Election Platform.

The update comes as Canada's inflation rate hits its highest level in two decades, putting the Trudeau government under pressure to cut spending while also addressing soaring food, gas and housing prices. Just a day before the budget document was released, Freeland reiterated the Bank of Canada's 2 percent inflation target, saying the move was a bulwark against inflationary pressures.

But the government also faces some spending pressures, including the possibility of a new wave of new cases from the highly contagious omicron variant, and the potential economic disruption of public health measures to control the spread of the virus.

Canada's federal debt as a share of GDP will peak at 48 per cent this year and fall to 44 per cent by 2026. In the April budget, the proportion was 51.2%.

This article originated from the financial world