Federal deficit might top $10 billion, Trudeau hints
But the debt-to-GDP ratio will continue to fall, he promised
OTTAWA — Prime Minister Justin Trudeau is edging away from his pledge to hold the deficit to $10 billion and now says this is just a “goal” as the Liberal government makes spending to spur economic growth its priority.
Trudeau made the remarks at a news conference Wednesday after the House of Commons passed a motion to raise taxes for many high-income earners while cutting the rate in a lower tax bracket.
The change — which the Liberals say will put more money into the pockets of middle-class Canadians — will come with a $1.2-billion cost to the federal treasury.
During the election campaign, the Liberals said the tax changes would essentially offset each other and be revenue-neutral.
Trudeau and Finance Minister Bill Morneau have begun to signal that the government might have to run a deeper deficit for three years than was anticipated during the election.
Amid a sluggish economy and low oil prices, the Liberals are saying the previous Conservative government left the books in the red.
“We put forward $10 billion as the goal that we were looking to keep for modest deficits,” Trudeau said Wednesday about his election campaign.
“But at the same time, we committed, on an ongoing basis, to keep you apprised if the situation worsened.
“Our entire budgetary framework is focused on growth that benefits Canadians through investment and through support for the middle class. And that’s what we’re going to continue to do.”
In his party’s election platform, Trudeau provided voters with a “planning framework” that forecast deficits of $9.8 billion in 2016-17, $9.5 billion in 201718, and $5.7 billion in 2018-19. It forecast a slim $1-billion surplus in 2019-20.
“With the Liberal plan, the federal government will have a modest short-term deficit of less than $10 billion in each of the next two fiscal years,” said the party’s platform. When released in September, the party said its plan “is transparent and honest about the weakened fiscal position that the federal government is facing.”
Trudeau said Wednesday the Conservative government’s budget last spring, which forecast a surplus, was “wildly optimistic” about the price of oil and how much revenue the federal government could count on.
During the campaign, Trudeau faced criticism from the Conservatives and New Democrats, who accused the Liberals of putting Canada back on the path to long-term deficits that would grow larger.
Trudeau appeared to suggest Wednesday that it’s not the actual size of the deficit that matters in the short term.
“The guarantee that we have put forward is that every year, our debt-to-GDP ratio will continue to decline.
“We will continue to decrease that every single year. Because that’s important for the fiscal health of our country.”
Second, he said the federal government will produce a balanced budget in 2019-20, the last year of its current mandate.
“Those are the two anchor points we hoped for,” Trudeau said.
“But the centre of our plan is to invest in growth, invest in our communities and give direct help to the middle class and those seeking to join it.”
The Liberals say they will spend billions in areas such as infrastructure, public transit and greener communities.
In Question Period on Wednesday, Conservative finance critic Lisa Raitt accused the Liberals of a “broken promise” by failing to keep a $10-billion cap on the deficit.
Replied Morneau: “We find ourselves in a more challenging situation than we expected. We were left with a deficit that we now need to deal with. Our plan for investing in Canada is now more important than ever.”
The centrepiece of the Liberals’ campaign — tax cuts — was at the forefront Wednesday in the Commons, as MPs voted 230-95 to pass the government’s motion.
Starting Jan. 1, the income-tax rate will drop to 20.5 per cent, from 22 per cent for taxable earnings between $45,282 and $90,563.
The rate on all income earned beyond $200,000 will rise to 33 per cent, from 29 per cent.