Battered by the fallout from collapsing oil prices, the government is projecting a deficit of at least $18.4 billion for 2016-17 — a far cry from the $3.9-billion shortfall they predicted back in November.
And by the time they unveil their maiden budget on March 22, it will likely exceed $20 billion.
Finance Minister Bill Morneau participates in a town hall meeting ahead of pre-budget consultations in Ottawa on Monday. (Photo: Adrian Wyld/CP)
That's because while Monday's economic update factored in the struggling Canadian economy, it did not include billions of dollars in forthcoming Liberal campaign promises, including infrastructure spending.
It's rare for a federal finance minister to release economic projections just weeks before a budget — a sign, perhaps, that Finance Minister Bill Morneau wanted to give Canadians a chance to brace for impact next month.
Morneau staged a campaign-style town hall event Monday to deliver the bad news, even going to far as to reassure those who voted Liberal last October not to lose faith in the decision they made at the ballot box.
"Given the economic situation in which we find ourselves today, Canadians made the right choice," Morneau said.
"I know the cries will get louder over the next few weeks, but I won't have budget 2016 simply become a kneejerk reaction to recent economic shifts. We'll be acting out of reason."
The federal Finance Department is also predicting a $15.5-billion deficit in 2017-18 — significantly higher than last fall's $2.4-billion estimate.
"I know the cries will get louder over the next few weeks, but I won't have budget 2016 simply become a kneejerk reaction to recent economic shifts."
The Liberals are banking on some of their vows to help revive economic growth and create jobs in Canada's struggling economy. The party's election platform called for billions in "new investments" for 2016-17, a tally that doesn't include numerous uncosted Liberal promises.
"I'm talking about investments, not spending," said Morneau, who, like Prime Minister Justin Trudeau himself, has dropped hints that the Liberal promise to balance the budget in four years may also be in jeopardy.
"In a volatile economic situation," the minister said, "it may take a little longer than we expected."
Interim Conservative leader Rona Ambrose wasted no time in portraying the Liberals as wanton spendthrifts who have no regard for the long-term consequences of their cavalier bookkeeping.
"Today is a sad day for Canadians," Ambrose said from the House of Commons foyer.
"I don't think the Liberals know that no matter how much money they actually borrow, they actually have to pay it back ... they cannot blame their broken promises and runaway spending on a slowing economy."
The Conservatives insist they left the Liberals with balanced books, a claim buttressed Monday by the latest fiscal monitor numbers, which showed a budgetary surplus of $3.2 billion over the first nine months of 2015-16 — from April to December 2015.
Now is the time to make investments to build a stronger middle class and foster long-term economic growth. pic.twitter.com/yZGSmjRGRd— Bill Morneau (@Bill_Morneau) February 22, 2016
Sticking to guns on spending
Morneau's department, however, says Canada is on track for a shortfall in the current fiscal year, though its updated projection is now $2.3 billion rather than the previous estimate of $3 billion.
The fiscal downgrades for the next two years are largely due to lower oil prices and weaker-than-expected growth in the United States and world economies, Finance said.
Morneau's calculations are based on an average projected oil price of $40 for 2016, down from $54 in the government's fall update, and projected growth of 1.4 per cent, down from two per cent in the fall.
The Finance Department said the fiscal projections are also about $2 billion lower per year because recent developments have been accounted for, including the Liberals' changes to the income-tax brackets and Canada's operations in the Middle East.
The government traditionally bases its fiscal predictions on the average forecasts of private-sector economists, whom Morneau met earlier this month.
However, after crunching the numbers from the economists, Finance officials knocked about another $6 billion per year from the bottom lines in 2016-17 and 2017-18.
The department described the accounting move as an adjustment for risks that could arise from factors such as further disappointment in the U.S. economy or oil prices that fail to rebound as quickly as expected.
But the decision to show a bigger deficit forecast could also make it easier for the Liberals to score political points by beating expectations.
Monday's release, less extensive than the government's annual fall updates, comes amid numerous downgraded growth forecasts for Canada, which has been hit particularly hard by the steep slide in oil prices.
"There's no question the times are tough right now for many Canadians across the country, and in that situation a less-ambitious government might see these conditions as a reason to hide, to make cuts or to be overly cautious," Morneau said.
"Our government believes strongly that the economic downturn makes our plan to grow the economy even more relevant than it was a few short months ago."
To help revive the economy, the Liberal government is counting on increased infrastructure investments, the tax-bracket changes to provide relief on the middle-income bracket and adjustments to child benefits.
His government has instead been emphasizing its other key promise to continue lowering Canada's debt-to-GDP ratio during its mandate. Experts have said Ottawa could run annual deficits as high as $25 billion and still shrink that ratio.
Morneau also announced Monday that Dominic Barton, a director from the consulting firm McKinsey & Company, will lead a new advisory council on economic growth.
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