OTTAWA – The Trudeau government says the federal books inherited from the Conservatives will drive the country billions of dollars deeper in the hole than expected — downgrading, perhaps, the Liberals’ pre-election fiscal vows into aspirational goals.
The new government’s gloomier forecasts Friday prompted opposition critics to ask: which parts of the platform are the Liberals planning to ditch to meet their budgetary promises?
After releasing the update, Finance Minister Bill Morneau maintained the government will fulfil its pledge to balance the books four years from now — before the next election — despite the weaker economic environment and the steeper fiscal obstacles.
To get there, the government will have to contend with an updated fiscal baseline about $6 billion lower per year than the forecasts contained in the Conservatives’ April budget, the fresh Finance Department numbers showed.
For example, the $2.4-billion surplus for 2015-16 — including the $1 billion set aside for contingencies — projected in April by the Tories is now expected to be a $3-billion deficit.
Morneau, however, wasn’t as clear when asked whether the Liberals’ projected annual deficits in the coming years could swell above the $10-billion cap. The party made the promise on their way to victory in last month’s election campaign.
“I think it would be too soon for me to answer your question and to give you specifics,” Morneau told reporters when asked whether the grimmer outlook could increase the party’s annual projected shortfalls above the $10-billion mark.
The Liberals had promised to run annual deficits of just under $10 billion over the next two years with a shortfall of about $5.7 billion in the third year before balancing the books in time for the next election.
Morneau said the figures released Friday are a starting point and he insisted the government intends to keep its campaign commitments.
“We aspire to meet all those goals,” said Morneau, a rookie politician who pointed out it was only his 16th day as finance minister.
His department’s latest forecasts do not account for the big-ticket spending promises in the Liberal platform, nor do they factor in the potential benefits the government expects from its plan to roll out stimulus such as infrastructure.
During the election campaign, Justin Trudeau’s Liberals vowed to kick-start the economy and create jobs through tax cuts for the middle-income earners and by pouring billions into infrastructure.
Now in government, the Liberals noted Friday that economic conditions have deteriorated since the Tories’ April budget because of higher expenses and lower revenues. Government officials blamed the more-negative outlook on stubbornly low commodity prices, global uncertainty and the very weak performance by the United States economy to start the year.
“Risks to the Canadian outlook remain tilted to the downside,” the update said, adding that monthly economic growth has picked up again in recent months after a contraction over the first two quarters of 2015, which is considered a technical recession.
The update, the first since the Liberals won power last month, also contains average forecasts made last month by private-sector economists.
The economists downgraded the April projections for real gross domestic product — the common measure of economic growth — to an average of 1.9 per cent from 2015 to 2019, from 2.1 per cent. The GDP forecast for 2015 slid from two per cent in April’s forecast to 1.2 per cent in Friday’s update.
The experts also lowered their predictions for crude-oil prices to an average of US$61 per barrel from 2015 to 2019, from US$70.
In reaction to the updated numbers, Conservative MP Maxime Bernier said the Liberals will likely be forced to adjust their plan — by running bigger-than-expected deficits, cutting programs or hiking taxes.
“What cuts will they have to make from their electoral promises?” Bernier said.
Morneau said the Liberals built their fiscal plan on an understanding that economic growth had been weak, but he insisted that at the time they didn’t know the extent of the hurdles ahead.
“Clearly, no one can know exactly what’s going to happen when you start out building a platform,” said Morneau, who will table his first budget in the new year.
“We didn’t know that there would be a significant challenge in the Chinese equity markets. We couldn’t know that there would be so many challenges in Greece. We couldn’t know the price of oil. So there are always factors that you have to consider.
“And I think what we need to do now is to take a look at those factors, give Canadians an understanding of where we’re at … and use that as the starting point for what will be our budget in 2016.”
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