How deep should our deficits go?
Experts debate the merits of Liberal plan to pile up debt
OTTAWA— It’s become the multibillion-dollar question — how big, exactly, will the federal deficit be?
Analysts have made predictions leading up to next Tuesday’s budget on the magnitude of Ottawa’s shortfall, poised to reach tens of billions.
The Liberal government has acknowledged the deficit could rise above $20 billion as it fulfils election vows and introduces economy-boosting measures, such as infrastructure spending. The government has kept mum on the final figure, but many experts anticipate Ottawa will be at least $30 billion in the hole in 2016-17. Some have recommended how large — or small — the government should allow the deficit to grow.
The C.D. Howe Institute is the latest to weigh in with the release Wednesday of its annual “shadow” budget, a document that urges the Liberals to show some spending restraint.
The think-tank suggests a fiscal approach that will produce deficits of $15.3 billion and $12.2 billion over the next two fiscal years — levels significantly lower than other observers.
On the other end of the spectrum, a couple of big banks and the left-leaning Canadian Centre for Policy Alternatives have recommended the government inject even more fiscal stimulus, which will create a deficit as high as $40 billion in 2016-17.
TD Bank, meanwhile, has said the federal government is on track to run $150 billion in budget deficits over the next five years.
The projections come as the government prepares its budget at a time when the economy is struggling with the consequences of low commodity prices, particularly oil.
The country’s economic situation darkened in the months that followed the October election, which prompted Finance Minister Bill Morneau to take the rare step last month of releasing a fiscal update only weeks before the budget.
The document revealed the treasury was projected to produce a shortfall of at least $18.4 billion in 2016-17, a projection that didn’t account for roughly $10 billion in Liberal spending commitments. The updated numbers also predicted a $15.5-billion deficit in 2017-18.
In November, shortly after they were elected, the Liberals predicted shortfalls of $3.9 billion in 2016-17 and $2.4 billion in 2017-18.
The Liberals made a counter-intuitive promise during the election campaign when they vowed to run deficits over the next three years in order to pay for infrastructure projects to stimulate the weak economy.
They had pledged to cap annual shortfalls at $10 billion over that span, a vow they are now poised to break. The Liberals have also backed away from their campaign promise to balance the books in four years.
The C.D. Howe Institute argues in its report that the Liberals can support economic growth and still return to a balanced budget by 2019-20.
“Ottawa must temper the sense created by the election campaign and early post-election announcements that there are no limits to what the federal government can spend and borrow,” it says.