Deficit could balloon to $30B: economists
$18.4B, but that’s without infrastructure
• By lowering the economic bar to ankle level, Finance Minister Bill Morneau might be hoping to reset the expectations for spending and growth that Canadians so clearly voted for only a few months ago.
Call it damage control in advance of the March 22 federal budget.
On Monday, Morneau surprised even some of the private- sector economists who met with the minister less than two weeks ago by announcing the government’s shortfall for fiscal 2016-17 would be at least $18.4 billion — not the $10-billion deficit figure previously anticipated. That sum includes a $ 6- billion contingency fund, bumped up from $ 3 billion last year.
Add in another $ 10 billion or so for new stimulus spending and that puts the 2016-17 deficit closer to $ 30- billion- plus, according to analysts.
This comes after a small budget surplus a year earlier, and sets the course for a string of ever- narrower shortfalls over the remainder of the Liberal government’s mandate — dependent on the pace of economic growth.
Ottawa is assuming that pace will be around 1.4 per cent, down from their previous forecast of two per cent, although the projection is based on oil prices averaging US$ 40 per barrel this year. Crude was trading just above US$33 on Monday.
But for now, the Canadian economy is under-performing previous forecasts.
During a pre- budget news conference in Ottawa, Morneau said the Liberals “made important commitments to Canadians in the course of our election campaign. We made investments a core part of our promise.”
“We also told Canadians that we wanted to deal with the very real challenge that they were facing in their dayto-day lives,” he said.
“Our very first step was to reduce taxes on nine million middle-class Canadians. That’s an important step. That puts money into the economy immediately. A second step that was talked about a lot about is Canada child benefit, which will put money into the economy.”
Infrastructure spending was another key election platform for the Liberals.
“That is our single- most important commitment to Canadians. We will be prudent along the way,” Morneau told reporters.
“We’re also going to put money into infrastructure spending — some of it which we will be able to get at in the relatively short-term for plans that are already ready, and some of which will take a little longer,” he said.
While many analysts agree that some stimulus measures are required to keep the economy growing, it could come down to doing work that can be started right away and not major projects that tend to begin much farther down the road.
“Of course, that’s always the big challenge, or the big strike against infrastructure programs,” said Douglas Porter at BMO Capital Markets. “I suspect, if you want to get a lot of fiscal spending growth relatively quickly, then they are going to have to look at things like repair work, rather than going after new projects,” Porter said.