After a pre-budget tour, the Liberals will show how they will pay for it on Tuesday

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OTTAWA — As Finance Minister Chrystia Freeland promises to keep the federal deficit from rising in Tuesday's federal budget, all eyes will be on the Liberals' pay-as-you-go plan and whether it could include new taxes on the wealthy.

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At a press conference Thursday, Freeland responded directly to a reporter's question about whether Canadians expect the deficit to grow this year.

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“No,” he said.

The finance minister reiterated that his government plans to meet the fiscal hedges it promised in the fall, including a pledge to keep the federal deficit at $40.1 billion in the 2023-24 fiscal year.

But the many announcements ahead of the federal budget, including billions in spending on housing and national defense, raise a big question: How do the Liberals do the math?

Politically, a Liberal government cannot commit to more deficit spending because of the risk of keeping inflation and interest rates high for too long.

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A slowing economy means the federal government has less financial capacity to fund new initiatives.

It is suspected that the liberals' solution to this dilemma will be to create new taxes aimed at corporations and the wealthy.

Freeland has ruled out tax increases for the middle class in the upcoming federal budget, but won't say whether others will get the same treatment.

High taxes on corporations provoke strong reactions from the business community and the financial sector.

The Business Council of Canada has warned against raising corporate tax rates, saying it would be bad for business investment at a time when the country is struggling with productivity.

“I think it would be very bad economic policy,” said Robert Asselin, the council's senior vice-president of policy and a former budget director for the Liberals.

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But Tyler Meredith, Freeland's former head of economic strategy and planning, said no one should be surprised if the federal government raises taxes, given all their demands for more spending.

Meredith said that while they have pushed for no new spending in the budget, stakeholders have demanded more dollars in defense and corporate subsidies to enable the green transition.

“If you do all that, it's a lot of money,” Meredith said, noting that the government has other expensive priorities like pharmaceuticals and dental care.

“And at some point, something's got to give if we want a … sound fiscal path at the same time.” And people should not be surprised by this.”

Canadians have had a well-deserved preview of the federal budget for the past three weeks as Prime Minister Justin Trudeau and his team embark on an unconventional cross-country tour to sell their policies.

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The Liberal government has pledged billions of dollars in loans for housing, national defence, a national school meal program and expansion of childcare centres.

Days before the budget, the Liberals unveiled a comprehensive plan to tackle the housing crisis.

On Friday, Trudeau called it “the largest and most ambitious housing plan Canada has ever seen,” promising to build nearly 3.9 million homes by 2031.

The government's pre-budget strategy has helped the Liberals reshape their policy agenda after months of struggling to debunk the Conservatives' cost-of-living narrative.

The newly unveiled housing plan has won praise from the governing Liberals, industry groups, municipalities and the man who inspired much of the plan: Mike Moffat.

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Moffat, a prominent housing expert and senior director of policy and innovation at the Smart Prosperity Institute, welcomed the plan's breadth.

“This is the most comprehensive housing plan I've ever seen,” Moffatt said.

It remains to be seen whether the Liberals will gain any favor from a disgruntled electorate, as the federal Conservatives have maintained a double-digit lead since the summer.

The current government is fighting against the belief among voters that the federal Liberals are to blame for the country's economic woes.

As the Liberals focus on affordability ahead of the budget, the Conservatives and New Democrats are telling Canadians the Trudeau government can't be trusted with results.

Despite the difficult political reality facing the minority Liberals, Meredith said they still have time to turn things around.

He advised other liberals to focus on the long game.

“That being said, I think the main thing we're looking at is whether or not people are really opening up and paying attention,” Meredith said.

“It's very hard to change the dynamic if people aren't listening. And that's really what I would expect… anecdotally over the next six months.”

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