The federal budget won’t be balanced until at least 2040, the Finance Department said Friday, providing fresh figures for parties looking to position themselves with voters as the best stewards of the public purse.
Federal officials estimate it will take another 22 years to get a balanced budget – five years earlier than the Liberal government predicted last year – if there are no major economic shocks or new government spending.
Long-term budgetary projections suggest that by the end of fiscal year 2040-2041, federal books will be in surplus by $1.7 billion, based on current assumptions for how the economy will grow and expectations that Liberal programs to help boost business investment will yield a financial windfall for the country – and for federal coffers.
All the assumptions make the figures “subject to a fair degree of uncertainty,” the report warned.
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The figures are sure to play a key role in October’s federal election where the country’s finances will seep into spending and tax promises the parties will make to voters. Finance Minister Bill Morneau said the Liberals’ long-term spending plans balance “smart investments in Canadians with sound fiscal management” but opposition parties argued the government can’t be trusted with its spending promises.
The Trudeau Liberals promised during the 2015 election to balance the books by the end of their mandate – 2019 – after running annual deficits of about $10 billion. Instead, the deficit figures rose sharply and federal books are expected to finish this fiscal year, which ends in March, with a shortfall of $18.1 billion.
The annual update on the long-term outlook for federal finances says that if things go better than expected, the budget could be balanced – or almost so – by 2024.
If the economy doesn’t grow as fast as predicted – and there are already signs an economic slowdown is on the horizon – then the deficit could get worse until 2034.
“We’re at the peak of the global economic cycle. This is as good as it gets,” Conservative finance critic Pierre Poilievre said.
“If the federal government is running a $20 billion shortfall in its best year, then imagine how dreadful the situation will be in its worst year. It would be like if you had your best year at work and you also max out your credit card.”
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NDP finance critic Peter Julian said his party doesn’t have an aversion to deficits, as long as the spending makes a difference in people’s lives instead of deficit-financed tax incentives for corporate CEOs and businesses.
“There’s this real disconnect between Mr. Morneau and Mr. Trudeau’s willingness to throw money at the corporate CEOs, and to take us into deficit as a result, and the crying needs of Canadians that aren’t being addressed,” he said.
Federal officials say the government’s finances appear sustainable over the long term because the Liberals’ favoured fiscal number – the federal debt as a percentage of gross domestic product – is expected to decline over time. That’s a way of measuring how heavy the debt burden is compared with the size of the national economy rather than just tallying the total the federal government owes.
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Former parliamentary budget officer Kevin Page said cash-strapped provinces and territories could use the projection on the debt-to-GDP ratio to pressure Ottawa to cover a larger share of the costs for any new national programs. Estimates from Page’s team at the Institute of Fiscal Studies and Democracy at the University of Ottawa and the current parliamentary budget officer suggest provincial and territorial budgets aren’t sustainable over the long run.
“This is a sensitive intergovernmental relations public policy issue and will continue to be so through the 2019 federal election, particularly as the federal government raises the prospect of a national pharmacare program,” Page said.
He also questioned the timing of the report’s release, suggesting the two decades of deficits was likely a major reason for releasing the document days before Christmas.
“It is a well-written report. Too bad it is released in a way that limits debate,” Page said.
Separately Friday, the Finance Department said Ottawa ran a small surplus of $92 million between April and October, compared with a deficit of nearly $6.6 billion in the same period last year, as revenue increased faster than spending.
For the month of October, which is as far as the latest report goes, the federal government posted a deficit of $1.1 billion, compared with a deficit of about $400 million in the same month last year.
The government’s debt stood at $669.5 billion as of October. According to Friday’s federal projections, that figure will peak at almost $960 billion in the same year the budget reaches balance.