Experts say it’s not surprising that the Liberal government will blow through its initial projected deficit of $10 billion this coming year, and even less surprising that it won’t find its way back to balanced books by 2019.
While Prime Minister Justin Trudeau’s admission this week that Ottawa will probably break both pledges is certain to have political consequences, BMO Financial Group chief economist Doug Porter said it won’t mean much for the $2 trillion Canadian economy as a whole.
“I think unless they took very aggressive actions to bring down the deficit after stimulus (spending) early on, a balanced budget four years out is frankly pretty far-fetched,” said Porter, adding that even if the government did not change a thing, Canada would undoubtedly be facing a deficit of at least $10 billion in the coming fiscal year.
Trudeau recently backed away from campaign vows to balance the public books before the end of his government’s four-year mandate and cap the deficit at $10 billion in the upcoming budget in a sit-down interview with Montreal’s La Presse newspaper. The pledges had been central to the Liberal election platform.
Just how big the deficit will grow is unclear. It could balloon significantly if the government follows through on $60 billion in planned infrastructure investments in an effort to bolster the economy and tackle rising unemployment.
Porter said his personal guess is about a $20 billion deficit for 2016-2017.
“I happen to believe infrastructure is one of the better paths that they can go by, but I wouldn’t use the word ‘kickstart,'” said Porter of the plan. “I don’t think we can rely on government spending alone to turn the economy around.”
Armine Yalnizyan, a senior economist with the Canadian Centre for Policy Alternatives, agreed that exceeding $10 billion in yearly deficit spending is not hugely worrying – even if that spending were to total $90 billion over the next four years.
“It’s absolutely realistic to look at that scale of deficit. The books got hammered by what’s been happening to the global economy as well as to commodity prices,” she said.
“Our economy is $2 trillion, we’re talking about a drop in the sea.”
On the flip-side, Yalnizyan said, balancing the books as quickly as possible and at any cost “is either going to cost us in severe cuts to public services or in higher taxes. That’s the only way, because the economy is not growing fast enough. And both those things have got huge fiscal drags on the economy. You don’t want to make things worse. That’s ‘job one’ of any government.”
Interim Conservative leader Rona Ambrose, meanwhile blamed “out-of-control Liberal spending” for breaking the $10-billion deficit promise.
“Unfortunately, it is today’s Canadian families – and generations to come – who will pay the price for Liberal mismanagement,” Ambrose said in a statement.
With files from The Canadian Press.
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