5 ways the federal deficit could exceed $20B

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OTTAWA – Finance Minister Bill Morneau released updated fiscal projections Monday that predict an $18.4-billion deficit in 2016-17. That number is expected to grow even larger before the budget is tabled March 22.

Here are five things that could push the Liberal budgetary shortfall beyond $20 billion next year:

1. Cash for infrastructure. The Liberal government made an election-campaign promise to invest at least $5 billion next year on infrastructure, which the party argues will kick-start the sluggish economy and generate jobs. The government has also sent signals that it is considering an increased cash injection.

2. Help for jobs and training. The government promised to spend nearly $2.2 billion in 2016-17 to enhance jobs and training, by taking steps such as increasing student grants and creating a youth employment strategy.

3. The Liberal version of the child benefit plan. If introduced, the party’s platform projects this program would have a net new cost of $1.8 billion next year once it replaces the plan introduced by its Conservative predecessors.

4. Bombardier. The Liberals are under pressure to open the public wallet to help cash-strapped aerospace manufacturer Bombardier Inc., which made a controversial plea to Ottawa for funding to help boost its troubled CSeries aircraft line. The request is believed to be $1.3 billion.

5. Assistance for aboriginal Canadians. The Liberals are on the hook for a number of uncosted promises, including several for Canada’s Aboriginal Peoples: ending boil-water advisories on aboriginal reserves within five years; delivering on all 94 recommendations from the Truth and Reconciliation Commission; and lifting the two-per-cent cap on federal funding for First Nations communities. Morneau confirmed Monday that next month’s budget will contain measures for indigenous Canadians.

 

Deficit projected at $18.4B, and climbing
trudeauOTTAWA – The federal government says next year’s budgetary deficit will be nearly five times larger than forecast just three months ago — a shortfall likely to more than double the $10-billion cap promised by the Liberals.

Battered by the fallout from collapsing oil prices, the government is projecting a deficit of at least $18.4 billion for 2016-17 — a far cry from the $3.9-billion shortfall they predicted back in November.

And by the time they unveil their maiden budget on March 22, it will likely exceed $20 billion.

That’s because while Monday’s economic update factored in the struggling Canadian economy, it did not include billions of dollars in forthcoming Liberal campaign promises, including infrastructure spending.

It’s rare for a federal finance minister to release economic projections just weeks before a budget — a sign, perhaps, that Finance Minister Bill Morneau wanted to give Canadians a chance to brace for impact next month.

Morneau staged a campaign-style town hall event Monday to deliver the bad news, even going to far as to reassure those who voted Liberal last October not to lose faith in the decision they made at the ballot box.

“Given the economic situation in which we find ourselves today, Canadians made the right choice,” Morneau said.

“I know the cries will get louder over the next few weeks, but I won’t have budget 2016 simply become a kneejerk reaction to recent economic shifts. We’ll be acting out of reason.”

The federal Finance Department is also predicting a $15.5-billion deficit in 2017-18 — significantly higher than last fall’s $2.4-billion estimate.

The Liberals are banking on some of their vows to help revive economic growth and create jobs in Canada’s struggling economy. The party’s election platform called for billions in “new investments” for 2016-17, a tally that doesn’t include numerous uncosted Liberal promises.

“I’m talking about investments, not spending,” said Morneau, who, like Prime Minister Justin Trudeau himself, has dropped hints that the Liberal promise to balance the budget in four years may also be in jeopardy.

“In a volatile economic situation,” the minister said, “it may take a little longer than we expected.”

Interim Conservative leader Rona Ambrose wasted no time in portraying the Liberals as wanton spendthrifts who have no regard for the long-term consequences of their cavalier bookkeeping.

“Today is a sad day for Canadians,” Ambrose said from the House of Commons foyer.

“I don’t think the Liberals know that no matter how much money they actually borrow, they actually have to pay it back … they cannot blame their broken promises and runaway spending on a slowing economy.”

The Conservatives insist they left the Liberals with balanced books, a claim buttressed Monday by the latest fiscal monitor numbers, which showed a budgetary surplus of $3.2 billion over the first nine months of 2015-16 — from April to December 2015.

Morneau’s department, however, says Canada is on track for a shortfall in the current fiscal year, though its updated projection is now $2.3 billion rather than the previous estimate of $3 billion.

The fiscal downgrades for the next two years are largely due to lower oil prices and weaker-than-expected growth in the United States and world economies, Finance said.

Morneau’s calculations are based on an average projected oil price of $40 for 2016, down from $54 in the government’s fall update, and projected growth of 1.4 per cent, down from two per cent in the fall.

The Finance Department said the fiscal projections are also about $2 billion lower per year because recent developments have been accounted for, including the Liberals’ changes to the income-tax brackets and Canada’s operations in the Middle East.

The government traditionally bases its fiscal predictions on the average forecasts of private-sector economists, whom Morneau met earlier this month.

However, after crunching the numbers from the economists, Finance officials knocked about another $6 billion per year from the bottom lines in 2016-17 and 2017-18.

The department described the accounting move as an adjustment for risks that could arise from factors such as further disappointment in the U.S. economy or oil prices that fail to rebound as quickly as expected.

But the decision to show a bigger deficit forecast could also make it easier for the Liberals to score political points by beating expectations.

Monday’s release, less extensive than the government’s annual fall updates, comes amid numerous downgraded growth forecasts for Canada, which has been hit particularly hard by the steep slide in oil prices.

“There’s no question the times are tough right now for many Canadians across the country, and in that situation a less-ambitious government might see these conditions as a reason to hide, to make cuts or to be overly cautious,” Morneau said.

“Our government believes strongly that the economic downturn makes our plan to grow the economy even more relevant than it was a few short months ago.”

To help revive the economy, the Liberal government is counting on increased infrastructure investments, the tax-bracket changes to provide relief on the middle-income bracket and adjustments to child benefits.

His government has instead been emphasizing its other key promise to continue lowering Canada’s debt-to-GDP ratio during its mandate. Experts have said Ottawa could run annual deficits as high as $25 billion and still shrink that ratio.

Morneau also announced Monday that Dominic Barton, a director from the consulting firm McKinsey & Company, will lead a new advisory council on economic growth.