Morneau to give sense of federal deficit

Mr. Morneau said Canada is on course to run a deficit of 18.4 billion Canadian dollars ($13.4 billion) in fiscal 2016-17-about 1% of Canada’s gross domestic product-before any new spending measures in his coming budget, such as ramped-up infrastructure investment and tax breaks for families. All told, the cumulative deficit over the 2015, 2016 and 2017 fiscal years will total C$36.2 billion, or C$26.9 billion worse than what Morneau forecast in the November update.

Prime Minister Justin Trudeau has already said his government would not be able to keep his election promise that the deficit for the next budget year would be kept to under $10 billion.

The projected deficit for 2017-2018 is now $15.5 billion, more than six times the estimate last fall of $2.4 billion. The party’s election platform called for billions in “new investments” for 2016-17, a tally that doesn’t include numerous uncosted Liberal promises.

The Liberals are banking on some of their spending vows to help revive economic growth and create jobs in Canada’s struggling economy.

Last week, for example, the Organization for Economic Cooperation and Development (OECD) lowered from 2 to 1.4 percent its growth forecast for Canada in 2016.

A government official says Bill Morneau will deliver a presentation Monday to update the country on the government’s fiscal and economic situation.

“In a volatile economic situation”, the minister said, “it may take a little longer than we expected”. An annual risk cushion of C$6 billion is built in because the finance department believes there is a huge downside to these projections. It must then be presented Tuesday at the finance committee of the House of Commons. The government says the fiscal downgrades are largely due to the combination of lower oil prices and weaker-than-expected growth in the USA and other world economies.

The government is not now considering any tax increases, such as hiking the GST, to help offset the loss of revenue and growing deficit, the minister said.

The government traditionally bases its fiscal predictions on the average forecasts of private-sector economists, whom Finance Minister Bill Morneau met earlier this month.

BMO Capital Markets said in a note the Liberals now look set to run a deficit of around C$30 billion in 2016-17, assuming additional stimulus spending of roughly C$10 billion in the upcoming budget.

And deficits? They’re about to get a lot bigger.

“A less ambitious government might see these conditions as a reason to hide, to make cuts or to be overly cautious”.

“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”, he added.

His government has instead insisted on another central promise of his program: to continue to reduce the debt to GDP ratio.

The Minister will also establish that given the current situation it is more important than ever for the Liberal government to invest in the economy to promote growth and help the middle class.

In support of the new, long-term economic plan for Canada, Morneau also announced the appointment of Dominic Barton, global managing director of McKinsey & Company, as the chair of the new advisory council on economic growth. Experts said Ottawa could accumulate a deficit of up to $ 25 billion and still reduce this ratio.