Federal deficit was over $5B below projection
OTTAWA Delays in infrastructure spending and a red-hot economy led to a smaller-than-projected federal deficit over the past year, but analysts say that gap could begin to close as the Canadian economy cools off in the second half of 2017.
Canada’s deficit was $17.8 billion over the 2016-2017 fiscal year, more than $5 billion below its initial projection, an annual report from Ottawa’s finance department said Tuesday. A massive infrastructure program and higher social spending was initially projected to create a $23 billion deficit following last year’s budget.
Higher consumer spending, a heated real estate market and positive jobs numbers created a roaring Canadian economy in recent quarters, with real GDP growing 4.5 per cent in the second quarter of 2017. But analysts say the deficit is likely to catch up with projections when economic activity winds down to more sustainable levels.
“For the rest of this calendar year we actually see a material deceleration in growth, back to around the two per cent level — which is not terrible by any means, but certainly slower than we’ve seen,” said Royce Mendes, an analyst at CIBC based out of Toronto.
In July the International Monetary Fund said Canada is likely to be the fastest-growing economy among G7 countries in 2017, averaging 2.5 per cent growth.
Meanwhile, the finance ministry’s report said annual infrastructure spending lagged $3.7 billion behind government projections.
Concerns over delays in infrastructure spending have been lingering for months, as the federal government struggles to distribute its capital allocations. In February, the Parliamentary Budget Officer released a report saying that only $4.6 billion of planned spending had been put toward specific projects. Total spending for the first phase of the program was slated to total $13.6 billion.
“There’s been delays in rolling out the infrastructure program as it had originally been envisioned,” Mendes said.
Prime Minister Justin Trudeau defended the delays in a news conference Tuesday, saying the government needed time to put capital toward the right developments.