At mid-mandate and with extra cash, Liberals to chart fiscal course toward 2019

The Trudeau government, right at the midpoint of its mandate, will map out its financial path this week and announce new measures as it enters the two-year stretch toward the next election.

The fall update will also reveal Tuesday what the Liberals plan to do with an unexpected windfall that experts predict could be as high as $10 billion in each of the next couple of years.

The midterm bump is the welcomed product of the strong economic surge in early 2017 that caught forecasters off guard.

Will Finance Minister Bill Morneau seek to use the extra financial breathing room to start grinding down the multibilliondollar deficits across his outlook?

Or will he pour a large sum of the additional cash into new spending and lingering commitments?

“This is probably the year in which we will get the best possible fix on how committed they are to returning to a path of lower deficits,” said Scotiabank chief economist Jean-francois Perrault, a former assistant deputy minister under Morneau.

“They’ve got money to spend if they want to spend it. But if they want to send a message of a reasonable degree of fiscal conservatism, it’s also their chance to send that message.”

Without new federal spending, Scotiabank is predicting shortfalls of $17 billion in 2017-18 and $16 billion in 2018-19.

By comparison, Morneau’s budget last March forecasted deficits of $25.5-billion for 201718 and $24.4 billion for 2018-19.

But Ottawa could choose to spend some of these extra funds. The next question is: where would it go?

A senior government official, speaking on condition of anonymity ahead of the announcement, said Tuesday’s update will include some new measures but insisted the document won’t be as thick as last year’s edition.

The official described it as more of a fiscal and economic update, rather than a minibudget containing big announcements.

Last year’s update included major new plans like the government’s $35-billion infrastructure bank, which is designed to use public money as a way to lure private capital for new, largescale projects such as transit systems. It also contained other significant changes to attract a greater number of talented immigrants to Canada and to create a hub mandated to lure more foreign investment.

This year, expect the Liberals to share more specifics on how they intend to deliver on big commitments, including those for Indigenous peoples and infrastructure investments, said Sahir Khan, the executive vice president of a University of Ottawa think tank.

Politically speaking, Khan believes the key for the Liberals at this stage of their mandate is for them to start convincing taxpayers that their money is being well spent.

“I do think that as you head into an election, the public starts to think about results and performance, particularly when things are being funded in a deficit context” said Khan, whose Institute of Fiscal Studies and Democracy is led by former parliamentary budget officer Kevin Page.

“I think there’s a general sense that the government’s now going to have to pivot to the quality of execution that matches the narrative between now and the election.”

Khan’s think tank is projecting the Liberals’ 2017-18 budget deficit to be more than $10 billion smaller than the government predicted in March.

But beyond next year, the think tank predicts the feds will struggle to improve the budgetary balance over the next halfdecade. It says the outlook will face fiscal pressures from new tax and spending measures as well as a higher-than-expected path for interest rates.

This year, Canadians can expect the Liberals to pat themselves on the bac as they argue their work to date has been a driver of the country’s economic success.