10:06 AM EDT, 04/15/2024 (MT Newswires) -- Economists are warning that tax hikes are on the table in Tuesday's federal budget as Finance Minister Chrystia Freeland seeks to square the circle of tens of billions in new spending announcements and a promise to not push the deficit any higher, The Globe and Mail newspaper is reporting Monday.

"In a bid to win back the millennial and Gen-Z voters who delivered the minority Liberals their last two election wins, the federal government has unveiled a raft of new spending and loan initiatives aimed at addressing that demographic's most pressing concerns: affordability and the housing shortage," the report said.

"The political push has come with a hefty price tag. In the two weeks leading up to the budget, the government has already announced more than $38-billion in new initiatives, $17-billion of which is through loan programs. That figure does not include the $10.7-billion over five years announced last week for a new defence policy," it added.

Monday's report noted the budget is expected to largely focus on three main themes: housing, affordability and economic growth. And still more spending is expected to be revealed on Tuesday. The government has not yet laid out the funding for its new pharmacare program. Nor has it funded the long-awaited disability benefit. Despite that, Freeland has repeatedly insisted that it can all be accounted for within the government's fiscal targets set last fall in the economic statement.

"That included three specific pledges: keep the size of the deficit for the fiscal year that ended March 31 to below $40.1-billion; lower the debt-to-GDP ratio in 2024-25 and keep it on a declining track thereafter; and keep annual deficits below 1 per cent of GDP in 2026-27 and beyond.

"We are committed to adhering to those guideposts," Freeland is cited as saying at a press conference last week.

To do that, the report noted, private sector economists say the government's options include spending cuts elsewhere, accounting for the new spending by spreading it out over several years, raising taxes or some combination of these. Given the minority Liberals' propensity to spend, their track record on breaking previous fiscal goals, and past challenges finding efficiencies in the federal purse, many expect the government will have to raise taxes, it said.

The Finance Minister has fuelled that speculation in large part by refusing to rule out such measures on industries and the wealthy. Last week, she reminded reporters that the government has previously raised taxes on the wealthy to give a tax cut to the middle class. She said her government's credo in 2015 was "supporting the middle class and those working hard to join it" and it hasn't changed since then.

"Our belief is we need to invest in middle-class Canadians, support middle-class Canadians and we will not be raising taxes on the middle class," Freeland said at the Thursday news conference.

Derek Holt, Bank of Nova Scotia vice-president and head of Capital Markets Economics, said that "in plain speak," this means others face tax hikes. "Freeland basically said 'Yes there will be some forms of tax hike,' if you read between the lines," he said in a Friday note.

Bank of Montreal senior economist Robert Kavcic was less declarative than Mr. Holt but in a recent note said a wealth tax and targeted corporate tax changes "would be on brand for the current government."

Meanwhile Canadian Imperial Bank of Commerce chief economist Avery Shenfeld pointed out last week that the government has already set the precedent for such a move with a previous decision to impose higher taxes on large financial institutions. He argued that such a move would run counter to Liberal pledges to improve Canada's productivity.

Robert Asselin, senior vice-president of policy at the Business Council of Canada and a former economic adviser to the Trudeau government, said he believes "there's no other way" for the government to meet its fiscal goals set just a few months ago.

"It's obvious that they are not cutting anything significantly on the expenses side and so they will need these revenues to meet these targets. This is what we're really worried about," he said.

(Market Chatter news is derived from conversations with market professionals globally, and/or from other media sources. This information is believed to be from reliable sources but may include rumor and speculation. Accuracy is not guaranteed.)