MORNEAU ‘ DEADLY SERIOUS’
Warns cutting spending could trigger recession
• Finance Minister Bill Morneau defended Tuesday the government’s decision to plunge deep into deficit, warning he’s “deadly serious” that any attempts to immediately balance the budget would require tax hikes or significant spending cuts, and ultimately sink the country back into recession.
However, Morneau provided few details on how the Liberals plan to eventually pull the country out of the red, as a new federal report documented where billions of dollars in badly needed revenues are being lost in a complex system of tax breaks.
Morneau was grilled at a parliamentary committee and in the House of Commons over his government’s fiscal update on Monday that projected an $ 18.4- billion deficit going into the budget. But that’s before several billions of dollars in new spending is added on that could see the federal deficit reach $ 25 billion or more in the upcoming 201617 fiscal year.
The Conservatives and NDP promised during the federal election campaign to balance the budget, something Morneau said would be catastrophic right now for a faltering Canadian economy.
“We believe that if we were immediately to look to balance the budget, we would be doing that at all costs. That would force us to either significantly raise taxes or to significantly cut spending. And neither of those alternatives are alternatives that we think make sense,” Morneau said Tuesday during an appearance at the House of Commons finance committee.
“We don’t believe that the outcome would be any less than likely a recession for our country if we actually were to take that approach at this time.”
Questioned later in the House of Commons by Conservative finance critic Lisa Raitt on whether he was serious that balancing the budget would trigger a recession, Morneau replied: “I was deadly serious.” He argued it would increase the unemployment rate and reduce the government’s flexibility.
Raitt led the Tory attacks at committee, highlighting what she said are a litany of broken promises from Morneau and the Liberal government.
The Liberals have broken promises to cap the deficit at $ 10 billion and to fully pay for a middle- class tax cut with a tax hike on the wealthiest Canadians.
The Grits have also backpedalled away from their commitment to balance the budget by 2019-20, while the government is also at risk of failing to meet its other “fiscal anchor” of continuing to lower the debt-to- GDP ratio.
Conservative Leader Rona Ambrose went after Prime Minister Justin Trudeau in the House of Commons over the eye- popping deficit and the government’s borrowing to fund programs, insisting “he has no way to pay it back unless he actually raises taxes.”
Morneau also maintained the government’s $ 6- billion deficit contingency is justified considering the volatility of revenues and is not simply an arbitrary number. But opposition politicians worry the Liberals are using it to artificially inflate the projected deficit, downgrade expectations and potentially bail on promised programs.
“They have raised expectations so much during the election, we are already seeing them backtrack on many of those commitments,” NDP finance critic Guy Caron told reporters.
The revenue challenges facing the new government were laid bare Tuesday by a new report from Finance Canada documenting the more than $ 100- billion in so- called tax expenditures that cost the federal treasury desperately needed revenue. The Liberals have promised to examine the tax expenditures in a “wide- ranging review.”
Glen Hodgson, c hi e f economist with the Conference Board of Canada, said the report released Tuesday is more reason to conduct a sweeping review of the “revenue leakage” from various tax breaks offered to Canadians to see whether the government is getting value for money.
There are currently more than 180 tax expenditures built into the tax code offering various breaks to individuals and businesses. Much of the lost revenue is associated with such popular programs as RRSPs, but many others are boutique tax credits targeted to select groups of people or businesses.
Some of the Liberal government’s promised tax cuts, including maintaining the cut to the small-business tax rate, will cost the treasury billions of dollars in revenues that would help offset a deficit that could easily surpass $ 25 billion when the federal budget is tabled March 22.