Slimmer deficits in federal budget, ‘big bets’ on high growth sectors
Boosting revenues via new tax measures and higher premiums on EI program.
OTTAWA — The federal government is projecting slightly smaller annual budget shortfalls in the years ahead and placing “big bets” on hand-picked sectors of the economy that the Liberals are banking on to eventually help balance the books.
But the spending blueprint tabled March 22 once again fails to outline a plan to eliminate the deficit, which the party promised to do in its 2015 campaign platform.
Not counting a $3-billion contingency cushion, Finance Minister Bill Morneau’s budget projects shortfalls of $23 billion for 2016-17, $25.5 billion next year and $24.4 billion in 2018-19 – an improvement of between $1.5 billion and $2.1 billion since the fall.
The leaner-than-expected deficit projections are largely tied to Canada’s stronger economic outlook. But the government is also boosting revenues via new tax measures and higher premiums on the employment insurance program.
Ottawa’s bookkeepers also found another $933 million over six years, thanks to previously planned defence commitments that were not spent as quickly as initially expected.
However, even with the changes, annual deficit projections later in the outlook – from 2019-20 to 2012-22 – are expected to be little bigger than previously thought.
The forecasts were part of a document that was relatively thin in terms of new spending, but did offer fresh details on commitments made in the Liberal government’s curtain-raising 2016 budget.
On policy specifics, the feds sharpened their strategies for enhancing skills development and driving the so-called innovation economy with a plan to make “make big bets in high-growth sectors” identified by the government.
Ottawa is hoping the plan will help lift the country’s growth trajectory.
“We are making investments in six economic sectors where Canada will lead the way: digital, clean technology, agri-food, advanced manufacturing, bio-sciences, and clean resources,” Morneau said in his budget speech.
He also highlighted the plan in a news conference prior to tabling the budget: “We are making investments in sectors of our economy where we know Canada has a comparative advantage.”
The plan includes the creation of growth strategies for each of these industries and more available cash to help each of them prosper.
Ottawa also pledged $125 million to launch an artificial intelligence institute and to promote collaboration between the country’s main centres of expertise in Montreal, Toronto-Waterloo and Edmonton.
To provide further support to emerging companies, the budget contained commitments to expand federal investments in venture capital, to ease access to public procurement contracts for young, innovative firms and to develop an intellectual-property strategy, which is considered critical by some industry players.
“It’s probably worth a shot,” Scotiabank chief economic Jean-Francois Perrault said of Ottawa’s plan to take a more hands-on approach by pinpointing specific sectors with potential.
Perrault said other countries have had success in the interventionist approach for particular sectors, when it’s done intelligently. He was encouraged Ottawa seemed intent on taking more of a free-market approach.
“It’s not about handouts – this is about providing funding so that companies can acquire equipment, can test equipment, can start to commercialize equipment,” said Dennis Darby, president of Canadian Manufacturers & Exporters.
“Call it seed money for investing.”
The executive director of the Council of Canadian Innovators, which represents tech-sector CEOs, said the budget contained positives and noted the government’s chosen industries each include high-growth firms.
But Ben Bergen said he was hoping for a bigger federal investment into the creation of an intellectual-property strategy. “This budget is a step in the marathon toward an innovation economy.”
Morneau’s budget also re-allocated infrastructure cash to add $150 million to a five-year, $800-million commitment the Liberals made in last year’s budget to support “superclusters” – a “dense” area of business activity that includes post-secondary institutions, companies, specialized talent and necessary infrastructure.
When it came to the headline numbers, the finance minister gave himself more breathing room on his so-called fiscal “anchor” to lower the debt-to-GDP ratio by the end of the Liberal mandate.
The ratio – a measure of the public debt burden – is now projected to only drop below 2016-17 levels in 2020-21.
The budget predicted a deficit of $15.8 billion in 2021-22, the final year of its forecast horizon.
The government also reinstated a $3-billion contingency fund, which increased the projected deficits swell to $28.5 billion next year, $27.4 billion in 2018-19, $23.4 billion in 2019-20, $21.7 billion in 2020-21 and $18.8 billion in 2021-22.
Morneau ducked and weaved when asked Wednesday about the lack of a road map to return to a balanced budget.
“Our plan is to continue to be responsible every step along the way,” he said. “We’re making every dollar count.”
The Liberals won the 2015 election on a platform that vowed to invest billions in measures like infrastructure and child benefits as a way to re-energize Canadian growth, and to finance the plan with annual deficits of no more than $10 billion. They also vowed to return to balance by 2019-20.
Since taking office, however, the government has abandoned those promises, citing a weaker-than-expected economy.