OTTAWA – Federal Finance Minister Bill Morneau says economic growth will guide the Liberal government’s spending decisions in the future, rather than specific, fiscal-discipline benchmarks.
Heading toward five years of multibillion-dollar deficits, the government has all but stripped away the firm fiscal restraints it promoted on the election trail.
The new spending plan aims to boost growth for years to come, said Morneau, who hopes it could even help Ottawa beat the budget’s own expectations and balance the books in five years.
The government can hit that target as long as Liberal investments in measures like the overhauled child-benefit package and infrastructure spending generate sufficient growth, he told The Canadian Press in a roundtable interview Thursday.
FULL COVERAGE: Federal Budget 2016
“If you do make the right investments, you put yourself on a different trajectory – and that’s what we’re aiming to do,” said Morneau, whose maiden budget was tabled earlier this week.
Thanks to projected cumulative federal deficits in the $100-billion range over the next four years, Morneau has been defending the document against criticism that it lacks a plan to eliminate – or even control – the shortfall.
The budget forecasts $113 billion in red ink over the next five years, including a $29.4-billion deficit this year. During the election campaign, the Liberals promised to limit the deficits to roughly $25 billion over four years.
Morneau’s budget numbers, however, do include a large, $6-billion-per-year risk adjustment in case the economy underperforms its baseline projections. The cushion has lowered fiscal forecasts to the point that they could ultimately help the government beat expectations and balance the books early.
Still, the budget says the Liberals are now on track to break three key election promises.
They include capping annual deficits at $10 billion, balancing the books in four years and reducing the debt-to-GDP ratio – also known as the debt burden – in each year of their mandate to 27 per cent.
“That is not what Canadians voted for,” Conservative interim leader Rona Ambrose told the House of Commons on Thursday.
“How can Canadians trust the current government to grow our economy and create jobs when it cannot even keep a simple promise to Canadians?”
Experts like Kevin Page, the former parliamentary budget officer, have questioned the government’s lack of rigid fiscal targets. Page said such a “gaping hole” in the midst of a major spending plan undermines the government’s fiscal credibility.
The Liberals have laid some of the blame on weaker-than-expected economic conditions since last fall’s election. They’ve also accused the former Conservative government of leaving behind a poorer-than-predicted fiscal situation – something the Tories have repeatedly denied.
Morneau gave no clear examples Thursday when asked whether the Liberals have concrete fiscal targets moving forward.
He did, however, refer to his budget’s prediction that the country’s debt-to-GDP ratio would fall below the current level in five years, to 30.9 per cent. He called it an “important marker.”
“The first thing that people asked us to do was make investments to grow the economy, so we’re moving forward on that,” he said.
Morneau added that international bodies, such as the OECD, G20 and IMF, have all prescribed fiscal stimulus as the best way to boost low growth, particularly with low interest rates.
The budget predicted near-term investments – especially in infrastructure and tax relief for middle- and low-income households – to boost Canadian growth by 0.5 per cent in 2016-17 and one per cent in 2017-18. The plan also predicts 43,000 jobs will be created or maintained this year because of the spending, followed by 100,000 next year.
“Right now I am confident that putting more money in the hands of middle-class Canadians, by giving them the capacity to spend, is going to help businesses across the country,” said Morneau, who cited the difficult combination of stubbornly weak growth and a rapidly aging population.
“If we can’t have a higher level of economic growth it will be challenging for the next generation.”
In particular, Morneau pointed to near-term projects outlined in the budget, such as infrastructure money for universities, research and to ease the financial burden on students.
He said the government is banking on those types of initiatives to help lay the foundation for a long-term growth strategy to be released later this year.