EXCLUSIVE Canada's Trudeau to limit new spending in fiscal update - source

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Canada's Prime Minister Justin Trudeau speaks in response to the Throne Speech in the House of Commons on Parliament Hill in Ottawa, Ontario, Canada November 30, 2021. REUTERS/Blair Gable

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OTTAWA, Dec 2 (Reuters) - Canadian Prime Minister Justin Trudeau's government will outline limited new spending in a fiscal update to be released later this month, a source said on Thursday, as inflation soars and some business groups and opposition politicians call for restraint.

Finance Minister Chrystia Freeland on Thursday told lawmakers the so-called fall fiscal update would be released on Dec 14. The update will be "limited in scope", a source familiar with the drafting of the document told Reuters.

Thisfiscal update will be similar to those released following the 2015 and 2019 elections, the source said. Other years when elections were not held, the fiscal update has been more substantial, like a mini-budget.

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After COVID-19 supports for businesses and individuals produced the highest deficit since World War Two last year, Trudeau during his campaign pledged C$78 billion ($60.9 billion)in new spending over five years to foster Canada's economic rebound.

"This will be an update on where the nation's finances are right now," the source said of the document. "We certainly have an ambitious plan that we will continue to move forward on. That's why you have a budget."

The government is expected to release its 2022-23 fiscal-year budget during the first part of next year. Inflation is at an 18-year high and is being driven mainly by supply chain problems and energy price gains, but some fear more government spending will make it worse.

This year's budget included C$101 billion investments over three years.

"There's a major concern that people have about the level of government spending, and whether or not it is fueling inflation and fueling demand," said Perrin Beatty, president and CEO of the Canadian Chamber of Commerce.

The prospect of rising interest rates next year, as signaled by the Bank of Canada, will increase the servicing costs on the country's debt, Beatty said.

'JUSTIN-FLATION'

Pierre Poilievre, the finance critic for the opposition Conservative Party, blames Trudeau for stoking inflation, which he calls "Justin-flation", with excessive government spending.

"We're going to be prudent," a second source familiar with the government's plans said.

"The prudent thing is to wait and just see how the next couple of months unfold and you always reserve the option in the winter budget to do more," said Rebekah Young, director, fiscal and provincial economics at Scotiabank. "It's harder to roll back than it is to roll out more programs in the winter."

Already in October, Freeland indicated Canada would significantly scale back spending on pandemic support programs now that more than 85% of the eligible population was vaccinated against COVID-19.

"A combination of strong revenue recovery and fiscal restraint would put the federal debt and broader general government debt each on a faster reduction course," Kelli Bissett-Tom, Fitch's director of Americas sovereign ratings, said on Thursday.

Fitch Ratings was the only ratings agency to strip Canada of a triple-A credit rating during the pandemic.

In April, Freeland said debt as a percentage of output would progressively decline, providing a fiscal anchor going forward. In the budget, debt was forecast to be 51.2% of gross domestic product this fiscal year, falling to 50.7% the following year.

Revenues were up C$47 billion, or 36.5%, in the April-September period, according to the Department of Finance.

There was no immediate comment from the prime minister's office. The finance ministry declined to comment.

($1 = 1.2811 Canadian dollars)

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Reporting by Steve Scherer in Ottawa and Fergal Smith in Toronto, Editing by Chizu Nomiyama and Alistair Bell

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