Anyone looking for a plan to go back to balanced budgets is likely to be disappointed with Finance Minister Bill Morneau’s 2018 fall fiscal outlook.
Rather than look to aggressively cut government debt, the fall fiscal outlook provides a modest picture of a gradual climb back out of the red with deficits to remain in the tens of billions even if the Liberals win another majority mandate next year.
Instead, the fiscal outlook paints a portrait of a global economy increasingly faced with uncertainty.
And in light of that, it offers a cautious approach focused on getting better bang for existing bucks and hoping several areas of new investment can return dividends.
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The federal deficit for the 2017-2018 fiscal year was $19.9 billion.
Next year, that’s expected to crawl down to $18.8 billion.
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That restrained approach seems to echo the sentiments published in a federal fiscal preview by TD Bank senior economist Brian DePratto two months ago.
In it, De Pratto cautioned that “above all, maintaining Canada’s enviable position by keeping the power dry to respond to future shocks is prudent.”
“A constrained approach is best,” he urged.
However, Conservative Leader Andrew Scheer criticized the government for not taking the opportunity to slash the deficit.
Marilyn Gladu, the Conservative health critic, also said not tackling the deficit threatens investments in things like health care.
“We need to see the urgent priorities that Canadians expect to see funded receive the proper attention,” she said in a statement Wednesday.
“We need to see a plan to get out of budgetary deficit, and we definitely need to see more respect for Canadian taxpayers, overall.”
Overall, the fall fiscal update offers roughly $5.3 billion in innovation and investment impact in the form of things like tax write offs in response to the U.S. corporate tax cut, and projects the Liberals will inch the federal debt-to-GDP ratio down from 31.4 to 30.9 per cent next year.
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That $5.3 billion plan is part of a total $16.6-billion price tag for the full range of proposed measures in the outlook.
Projections show the deficit dropping by roughly a billion dollars per year over the next three years, contingent on whether the Liberals win another term of government.
A drop of closer to $3 billion through unspecified future measures is projected to bringing the deficit down to $13.2 billion in the 2021-2022 fiscal year.
That would bring the debt-to-GDP ratio to 29.8 per cent.
But while the outlook stresses economic markers like 2.5 per cent average economic growth since 2015 and unemployment rates of 5.8 per cent, it also contains a number of warnings.
Those are focused on the risks of what is happening south of the border.
“For the global economy, there is a risk that the U.S. economy could overheat in light of significant fiscal stimulus at a time when the economy is already performing above capacity,” the analysis in the outlook reads, cautioning that the U.S. Federal Reserve could raise interest rates more quickly than anticipated to try and cool off red-hot markets.
That wouldn’t be good for Canada, experts noted.
Speaking on background, officials from the Department of Finance said the concerns raised in the fiscal outlook are meant to signal there are risks inherent in rapid economic growth that warrant serious caution – and it appears the government listened.
Many of the measures in the fiscal outlook focus on getting more bang out of existing bucks, from efforts to streamline government regulation and reduce costs to businesses and investing in a new strategic innovation fund, to boosting venture capital cash available to Canadian clean technology firms.
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All in, the measures proposed in the fiscal outlook are projected to cost a little under $500 million by March 2019, when the 2018-2019 fiscal year ends.
Over the next year, those costs will spike to $5.3 billion worth of investments in things like the strategic innovation fund, increasing export development support and a number of tax write-offs meant to sate the hunger of businesses calling for similar corporate tax cuts to those seem south of the border.
Those measures are all on a limited timeline, however.
By 2020-2021, the cost of the measures proposed in the fiscal outlook will drop to $4.4 billion.
It will then trickle off from $2.5 billion in 2021-2022 to $2 billion the year after, $1.7 billion in 2022-2023 as measures like tax write offs begin to taper off.
By 2023-2024, the costs are projected to fall again to $1.7 billion.