OTTAWA — The federal government is projecting a deficit of at least $18.4 billion next year, a shortfall that’s nearly five times projections from just three months ago and well past the $10-billion limit promised by the Liberals.
When the government unveils its maiden budget on March 22, the deficit could well exceed $20 billion once a number of big-ticket Liberal campaign promises — including infrastructure spending — are factored in.
Finance Minister Bill Morneau staged a campaign-style town hall event Monday to deliver the bad news, taking pains to reassure Canadians who might be reconsidering their ballot-box choice last October.
“Given the economic situation in which we find ourselves today, Canadians made the right choice” by voting Liberal, Morneau said.
“I know the cries will get louder over the next few weeks, but I won’t have budget 2016 simply become a kneejerk reaction to recent economic shifts. We’ll be acting out of reason.”
The federal Finance Department is also predicting a $15.5-billion deficit in 2017-18 — significantly higher than last fall’s $2.4-billion estimate.
The Liberals are banking on some of their vows to help revive economic growth and create jobs in Canada’s struggling economy. The party’s election platform called for billions in “new investments” for 2016-17, a tally that doesn’t include numerous uncosted Liberal promises.
“I’m talking about investments, not spending,” Morneau said.
Interim Conservative leader Rona Ambrose begged to differ, depicting the Liberals as wanton spendthrifts with no regard for the long-term consequences.
“Today is a sad day for Canadians,” Ambrose said from the House of Commons foyer.
“I don’t think the Liberals know that no matter how much money they actually borrow, they actually have to pay it back … they cannot blame their broken promises and runaway spending on a slowing economy.”
The Conservatives insist they left the Liberals with balanced books, a claim buttressed Monday by the latest fiscal monitor numbers, which showed a budgetary surplus of $3.2 billion over the first nine months of 2015-16 — from April to December 2015.
Morneau’s calculations are based on an average projected oil price of $40 for 2016, down from $54 in the government’s fall update, and projected growth of 1.4 per cent, down from two per cent in the fall.
Finance says the fiscal projections are about $2 billion lower per year because recent developments have been accounted for, including the Liberals’ changes to the income-tax brackets and Canada’s operations in the Middle East.
Ottawa also adjusted its deficit forecast for 2015-16 — a shortfall is now projected to be $2.3 billion rather than the previous estimate of $3 billion.
The fiscal downgrades are largely due to the combination of lower oil prices and weaker-than-expected growth in the United States and world economies, Finance said.
The government traditionally bases its fiscal predictions on the average forecasts of private-sector economists, whom Morneau met earlier this month.
However, after crunching the numbers from the economists, Finance officials knocked about another $6 billion per year from the bottom lines in 2016-17 and 2017-18.
The department described the accounting move as an adjustment for risks that could arise from factors such as further disappointment in the U.S. economy or oil prices that fail to rebound as quickly as expected.
But the decision to show a bigger deficit forecast could also make it easier for the Liberals to score political points by beating expectations.
Monday’s release, less extensive than the government’s annual fall updates, comes amid numerous downgraded growth forecasts for Canada, which has been hit particularly hard by the steep slide in oil prices.
Morneau, who revealed the update at an event at an Ottawa community centre as part of his pre-budget consultations, is also scheduled to appear Tuesday before the House of Commons finance committee.
“There’s no question the times are tough right now for many Canadians across the country, and in that situation a less-ambitious government might see these conditions as a reason to hide, to make cuts or to be overly cautious,” he said.
“But our government believes strongly that the economic downturn makes our plan to grow the economy even more relevant than it was a few short months ago.”
Last week, the all-party committee fielded formal pitches from dozens of groups, including lobbyists, First Nations leaders and economists, on what they think should be included in the budget. Many of them called on the government to follow through with its spending commitments.
To help revive the economy, the Liberal government is counting on increased infrastructure investments, the tax-bracket changes to provide relief on the middle-income bracket and adjustments to child benefits
Prime Minister Justin Trudeau recently acknowledged the Liberals would no longer fulfil their promise to keep the 2016-17 deficit under $10 billion.
He has also cast doubt on whether he would make good on his vow to balance the books within his four-year mandate — a headline pledge in the Liberal election platform.
His government has instead been emphasizing its other key promise to continue lowering Canada’s debt-to-GDP ratio during its mandate. Experts have said Ottawa could run annual deficits as high as $25 billion and still shrink that ratio.
Morneau also announced in his speech that Dominic Barton, a director from the consulting firm McKinsey & Company, will lead a new advisory council on economic growth.
The council will meet regularly with Morneau to advise him on policy actions on how to create conditions for long-term economic growth.