Additional $31.8B will be added to deficit over five years
Finance minister Morneau blames "new norm" of slow economic growth.
OTTAWA — Finance Minister Bill Morneau says the country is on track to pile another $31.8 billion onto the national debt over the next five years largely due to the “new norm” of slower economic growth – even as he announced the creation of a new infrastructure bank meant to counteract the slump.
Morneau released a fall economic statement Nov 1. with fresh projections that predict the treasury will run a total of $114.9 billion in deficits between 2016-17 and 2020-21.
In comparison, last spring’s federal budget predicted the government to run $83.2 billion worth of shortfalls over the same period.
Morneau’s fall update also added another year to the end of its outlook – a $14.6-billion deficit in 2021-22.
He did not predict when the government’s books would return to balance.
The economic statement, which Morneau delivered in the House of Commons, also contained several new measures, including billions in long-term infrastructure spending, the creation of an infrastructure bank designed to attract private capital, a program aimed at drawing talented immigrants to Canada and the creation of a hub with a mandate to lure more foreign investment.
The statement contained very little in new spending in the next five years, as is typical for a fall update of the country’s economic outlook.
The announced initiatives come in addition to the government’s existing commitments to invest billions on measures, including infrastructure and enhanced child-benefit cheques, that it says will help lift the weak economy.
Morneau told a news conference that with all the measures, the government is positioning Canada to succeed over the long term.
“We are moving forward on the investments that we outlined in Budget 2016,” he said. “What we’re announcing today is how we can amplify those investments.”
When asked about the outlook’s lack of a timeline to return the public books to balance, Morneau insisted the government would run deficits in a “fiscally responsible” way.
To ensure it’s a prudent approach, he reiterated Ottawa’s vow to stick its so-called “fiscal anchor” to lower the country’s net debt-to-GDP ratio – a measure of the public debt burden – from today’s level in five years.
“What we want to tell Canadians is that we believe that we should be focusing on making investments for today and for tomorrow that are going allow us to have a higher level of economic growth in the future,” he said.
“That’s of critical importance to us.”
The projections for deeper deficits, and the lack of a forecast to return the public books to balance, are certain to draw criticism from political opponents and some economists.
The Liberals won last year’s election campaign on a platform that promised annual deficits of no more than $10 billion over the next couple of years to allow them to spend billions on infrastructure projects as a way to deliver a boost to the struggling economy. The Liberals had also vowed to balance the books by 2019-20.
But the Liberals later blamed even weaker conditions for a revised forecast in the March budget of five straight annual deficits. The outlook predicts a sixth shortfall.
Many global experts, including the International Monetary Fund, have applauded Canada’s decision to try and generate growth through extra government spending, particularly since it carries a much-lower debt burden than most of its industrialized peers.
Morneau’s updated figures now predict deficit this year to be $25.1 billion – slightly larger than the $23.4 billion projected in last spring’s budget. These figures do not include the adjustment set aside for risk.
The deficit is expected to expand to $27.8 billion in 2017-18.
For now, the government has eliminated the $6-billion annual contingency fund that it had included in the March budget to cover unexpected problems. The accounting move makes the government’s deficit figures appear slimmer.
The deficit is gradually expected to shrink over the coming years to $14.6-billion in 2021-22, not including any provisions set aside for a rainy day.
Among the measures announced, Ottawa is setting up a global skills strategy that will speed up work permits and visas for foreign workers.
Morneau also says the infrastructure bank will have $35 billion in seed capital, meant to leverage private-sector investment and to spur growth.
The government is also creating a new Invest in Canada Hub to attract foreign investment. It will relax foreign investment restrictions a little bit – revising the national security rules and moving the threshold for reviewing foreign takeovers to $1 billion starting in 2017, two years ahead of schedule.
In other moves, the government is seeking to strengthen the independence of the of the chief statistician and the Parliamentary Budget Officer, which will become accountable only to Parliament, with all the privileges that entails, rather than the Library of Parliament.