Morneau to air Ottawa’s gloomy financial books

OTTAWA— Finance Minister Bill Morneau is expected to say the Conservatives left Ottawa’s finances in worse shape than anticipated, making it more difficult for the new Liberal government to live up to its economic promises.

To pay for stimulus spending to boost the economy, the Liberals have pledged to run budget deficits of up to $10 billion annually for three years before balancing the books in 2019.

But with the economic picture still weak, the Liberals are starting out in a bigger financial hole than expected, Morneau is expected to say in the new government’s first public airing of Ottawa’s books on Friday.

In a recent report, parliamentary budget officer Jean-Denis Fréchette gave a preview of the situation faced by the Liberals. As a result of the continuing drain on federal tax resources from the sluggish economy, the current federal budget actually faces four straight deficits, beginning with a shortfall of $3 billion in 2016, Fréchette said. This is in contrast to the budget surpluses predicted by the Conservative government.

That outlook does not factor in the new spending promises by Prime Minister Justin Trudeau during the election campaign. Trudeau pledged to increase Ottawa’s outlays for infrastructure and support payments for families. To do this, he said he would run budget deficits of $9.9 bil- lion in 2016, $9.5 billion in 2017 and $5.7 billion in 2018 before returning to a slim budget surplus in 2019.

But based on Fréchette’s calculations for the next two years, Trudeau may be in line for much larger deficits. Barring changes in the Liberal plans, the government could face a $13-billion deficit in 2016 and a $16billion deficit in 2017.

The Liberals are likely to say their stimulus spending will improve the picture by boosting the economy.

Although an uptick in the economy will result in somewhat higher tax revenues for Ottawa, the outlook is still daunting.

Morneau will confront the need to either cut back promised new spending or find billions of dollars in annual reductions in existing government programs, beyond the $3 billion in savings within four years the Liberals already pledged to identify.

Adding another element to the budget challenges, Fréchette says a series of improvements to benefits for veterans, introduced in the waning days of the Harper government, will likely cost the federal treasury $231.6 million over the next decade.

In its report, the budget office says the improvements will push the overall cost of providing benefits to the country’s ex-soldiers to $3.3 billion over the next 10 years.

Morneau’s fiscal update will not include any new spending measures, the finance department said.