OTTAWA – The Liberal government is planning to pile on more than $100 billion in public debt over the coming years as part of an ambitious strategy it hopes will revive economic growth over the long haul.
However, the blueprint tabled Tuesday has no firm timetable on when the deficits will end — and the return to balance is now poised to be sometime beyond the next election.
The document predicts big spending on investments like infrastructure will boost the country’s real gross domestic product by 0.5 per cent this year and one per cent in 2017-18.
To help get it there, the government is brazenly shattering its election promise to run “modest deficits” of no more than $10 billion before balancing the public books in four years.
Now, even five years looks like a reach — and that’s before the Liberals deal with billions in electoral promises that failed to make the cut in this budget.
The budget has opened spending floodgates that will lead the country to projected shortfalls of $29.4 billion this year, $29 billion in 2017-18, $22.8 billion in 2018-19, $17.7 billion in 2019-20 and $14.3 billion in 2020-21.
Program spending will rise by an average of 6.3 per cent in the next two years, compared to annual average increases of just 0.4 per cent between 2011 and 2015 under the Conservative government, according to Scotiabank economist Mary Webb.
Finance Minister Bill Morneau tried to reassure Canadians that the deficits are part of the plan to give Canada “a growth rate that’s going to put us in a continually strong fiscal position.”
If that higher growth kicks in a little early, Morneau said, it’s even possible the books could be balanced in five years.
“We’re going to get ourselves to a balanced budget — it’ll take a few years, but we’ll get there through strong investments,” Morneau told a news conference before tabling the budget in the House of Commons.
At the same time, Morneau made it clear how badly his government is relying on that growth to materialize soon, if only to make good on outstanding election promises such as the commitment to spend billions more on home-care health services.
“Over the long term … we’re starting today with investments — investments that are going to make a real difference,” said Morneau, who maintained that $1 in infrastructure spending will create more than $1 in economic activity.
As expected, the government numbers also include a hefty contingency cushion of $6 billion, which could ultimately help the Liberals beat the low fiscal expectations.
Experts, however, were skeptical that Ottawa’s plan to stimulate the economy will have the desired effect on growth.
“It looks like a bit of a stretch,” said Jean-Francois Perrault, Scotiabank’s chief economist and a former senior Finance Department official under Morneau.
Perrault, who was assistant deputy minister of economic and fiscal policy until the end of 2015, credited the government’s decision to put more cash in the pockets of lower-income earners through changes to the federal child benefit plan. That demographic is more likely to spend the money, he said.
Over the longer term, the government’s pledge to launch transformative infrastructure projects could generate a significant positive impact on the economy, Perrault added.
But the bulk of the Liberal infrastructure plan is only set to kick in after 2019 election year.
Craig Alexander of the C.D. Howe Institute think tank, said he believes the government investments in areas like infrastructure will help the economy — but probably not as much as Ottawa expects.
Alexander expects the investments to only boost real GDP growth over the next two years by about 0.2 or 0.3 per cent.
“The real problem is the fact that the government doesn’t have the money to pay for all the new initiatives,” said Alexander, referring to the string of projected deficits.
“The cautionary note is the fact that once you’re running deficits it’s very easy for them to run larger than you anticipate.”
*The Liberal plan will raise public debt by more than $110 billion between 2015-16 and 2020-21, he added.
The budget confirmed that government is on track to break their three major fiscal targets that helped them win the October election.
The Liberals vowed to balance the books by 2019-20 — a promise Prime Minister Justin Trudeau insisted in December was “very” cast in stone.
They also vowed to lower the country’s net debt-to-GDP ratio in each year of their mandate to 27 per cent. The ratio, also known as the debt burden, represents a government’s capacity to pay back debt.
On Tuesday, Morneau said the government would only lower the ratio over the course of the mandate. It is not projected to fall to 27 per cent.
During the campaign, Trudeau also pledged to respect a $10-billion upper limit for annual deficits unless the economic situation got “radically worse.”
The economy dipped in the first few months that followed the election, but recent data suggest overall conditions have improved since the start of 2016.
The opposition Conservatives have repeatedly criticized the government for planning to drive Canadians deeper into debt, even though the country is not in recession. The Tories insist they left the Liberals with a surplus in 2015-16, but Tuesday’s budget says the final figure will be a $5.4-billion shortfall.
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