Balanced budget takes a back seat for Liberals
Morneau puts focus on breaks for families, critics attack continued deficits
OTTAWA— The federal Liberal government is “doubling down” on spending to combat poverty rather than putting the books in the black anytime soon.
Unveiling a fall economic update that showed an economy going gangbusters, at more than 3 per cent, and lower deficits as a result, Finance Minister Bill Morneau said the government will use the bigger-thanexpected boost to its bottom line to give families more breaks, not to chart a path to a balanced budget.
In the Commons, Morneau said: “We’re doubling down on that strategy because it’s working.”
He now projects a $19.9-billion deficit for 2017-18 that will clock in at $8.6 billion less than was projected just last March.
“Not only is our plan working, it’s working better than expected,” he said.
Kevin Page, a former parliamentary budget officer now at the University of Ottawa, said in an interview Morneau is “in a sweet zone” as finance minister with the economy outpacing all G7 countries, but said as a result, “He should have a fiscal plan” to return to balanced budgets.
Page suggested that normal growth for the Canadian economy is more like 1.5 per cent a year, and the current pace “is not sustainable.” Even the government’s forecast for rising economic output in future years drops to 2.1 per cent next year, and hovers around 1.6 or 1.7 per cent in the years after that. Page said deficit spending now risks becoming structural — and a baked-in ongoing burden for future generations. “You have to deal with it at some point.”
Adding new fiscal spending into the mix now puts pressure on the Bank of Canada to raise its interest rates “because people are piling on debt,” he said.
Political critics like Conservative Leader Andrew Scheer pounced on Morneau’s plan to continue to spend more than the government takes in annually and borrow money to finance that spending.
“Only a Liberal would ask Canadians to thank him for running deficits that are double what he promised,” said Scheer, referring to the Liberals’ broken campaign promise to limit deficits to $10 billion a year and balance the budget by 2019.
The NDP’s parliamentary leader Guy Caron said the update amounts to little more than a Liberal attempt to “change the channel” from the controversies surrounding the finance minister and the potential conflicts of interest that arise from his personal wealth. He took credit for the announced indexation of the child benefit, claiming the Liberals only made the move because of opposition pressure. And while he welcomed the news that the government would beef up the working income tax break for low-income earners, he bemoaned how it isn’t slated to kick in until 2019.
“It’s obviously a way for the Liberal government to try to deflect attention from the problems that the minister is actually experiencing right now,” Caron said. “To be called an economic update, you actually need to have something new to present.”
Morneau said the government will move two years earlier than promised to increase Canada Child Benefit payments for lower- and middleincome Canadians in pace with the cost of living. It’s called indexation and it’s a big-ticket item.
The increases to the monthly taxfree payments for families with kids under 18 will be pegged to inflation, starting in July 2018, and will cost the government $5.6 billion over five years. What it means to a single parent of two children who earns $35,000 a year, for example, is an extra $560 in 2019 on top of what would have been an $11,125 annual payment without indexation.
Child poverty activists welcomed the government’s plan.
“Indexation of the CCB has been a policy lever that Campaign 2000 has called for since Budget 2016,” said Anita Khanna, spokesperson for the coalition of more than 120 national, provincial and local partners dedicated to ending child poverty.
“We are pleased the government has recognized the great benefit of putting money into the pockets of families to not only boost family well-being, but also boost the economy,” she said.
There’s another sweetener for lowincome Canadians. Morneau is boosting the Working Income Tax Benefit, a refundable tax credit that eases the tax burden on low-income Canadians and encourages those who don’t work to join the workforce. That measure will see Ottawa spend $500 million a year more to improve the financial security of low-income working Canadians . . . but not until 2019, an election year.
The fall economic update also reveals the cost of Morneau’s decision to fulfil the Liberals’ election promise to lower small business tax rates from 10.5 to 9 per cent by 2019.
It will cost the treasury $2.96 billion over five years. That is partly offset by an expected rise in what the taxman will collect through controversial changes to stop so-called “income-sprinkling” by incorporated business owners as a way to split income among family members to take advantage of lower tax rates that apply to them.
That measure will bring in about $220 million to $245 million a year, when it is implemented fully. With files from Alex Ballingall and Laurie Monsebraaten