Balancing books will be a challenge
Finance Minister Bill Morneau and the Liberal government retreated further Tuesday from their promise to balance the books by 2019-20, saying it will be “challenging” to do and that the government is committed to returning to a balanced budget “over the long term.”
Morneau’s comments echoed a similar message last week from Prime Minister Justin Trudeau, who said balancing the books by the end of the four-year term will be “difficult” to do if economic growth remains sluggish.
“Our goal is to make sure that as we make investments that are going to make a real difference for Canadians, that we do so in a way that’s prudent and that we maintain a goal of getting to a balanced budget over the long term,” Morneau told reporters Tuesday.
“We recognize that’s challenging, but that is our goal and we maintain that as an important objective.”
SPENDING DEMANDS BLUNT PROMISE OF A BALANCED BUDGET
Billions of dollars in new spending demands are racking up for Morneau as the House of Commons finance committee holds marathon budget consultations this week, prompting more questions and concerns about how large the deficit will be in next month’s fiscal blueprint and when the government will return to black ink.
With the Liberal government backing away from its $10-billion deficit cap — and several economists predicting the 2016-17 budget deficit could reach $20 billion or more — there are an increasing number of organizations and groups with their hands out.
Several dozen individuals representing aboriginal groups, industry and environmental organizations, and not-for-profit agencies across Canada are appearing before the committee to make their pitch for what should be included in a March federal budget Trudeau has said will have a deficit exceeding $10 billion.
The government has promised about $5 billion in new infrastructure spending in 2016-17, while billions more in red ink could come from the sharp decline in commodity prices, which erodes federal revenue. Even so, it appears billions of dollars in deficit spending may be available for other programs and projects.
Conservative finance critic Lisa Raitt noted the Liberals are on their way to breaking three key fiscal promises: a revenue-neutral middle-class tax cut; a $10-billion budget deficit cap; and a commitment to balance the books by 2019-20.
The Conservatives pressed Morneau in the House of Commons Tuesday to tell Canadians what the deficit cap will be in the Liberal government’s first budget, but the minister danced around the question.
Morneau promised Tuesday the government “will show discipline” in its spending and continue to reduce the debt-to-gross-domestic-product ratio, but that balancing the budget “will be difficult” in a slowgrowth economy.
Dan Kelly, president of the Canadian Federation of Independent Business, which represents more than 100,000 small business owners across the country, said nobody appears to be “pushing the panic button” over the government running some short-term modest deficits.
While the government is committing to deficit spending to stimulate the economy, CFIB certainly doesn’t want to see a new stimulus package and is worried it could lead to a “run-up of deficit financing,” he said.
“Our expectations are that the deficits are going to be large and we’re not confident that there will be a really strong plan to get us out,” Kelly said in an interview, before making a presentation to the finance committee.
Kelly is urging the government not to increase Canada Pension Plan premiums in conjunction with the provinces, saying it will hurt small businesses. CFIB would like to see the government extend the small business tax credit (which lowers EI rates for small businesses) or permanently reduce the amount smaller firms will pay in employment insurance premiums.
Many presenters at the finance committee urged the government to launch another round of the popular home energy retrofit program to help stimulate the economy and reduce greenhouse gas emissions.
Glen Hodgson, chief economist with the Conference Board of Canada, called on the government to conduct a “fundamental review” of the $100 billion in “revenue leakage” from various tax breaks offered to Canadians to see whether the government is getting value for money.
There are more than 180 so-called tax expenditures built into the tax code offering various tax breaks. Some of the lost revenue is associated with valued programs (RRSPs), but others are boutique tax credits targeted to select groups of people or businesses.
“Maybe it’s time to step back and think about how we can have a tax system that actually boosts the productivity and performance of our economy, rather than one that just captures revenue and then selectively provides incentives to different interest groups,” he said.