POLITICS

Federal Budget 2016: Liberals' Spending Plan Projects $29.4B Deficit

03/22/2016 04:13 EDT | Updated 03/22/2016 07:59 EDT

OTTAWA — The new Liberal government delivered a sunny ways budget Tuesday brimming with optimism and billion-dollar spending increases spread across a wide spectrum of Canadian society.

But the bold effort to spur economic growth after almost a decade of fiscal restraint will add more than $100 billion to the federal debt over the next five years as Finance Minister Bill Morneau plunges Ottawa back into the red.

And like March sunshine in the frozen national capital, there's concern that Prime Minister Justin Trudeau's bright budget may not heat up the economy quite as much as the Liberals promised it would.

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Prime Minister Justin Trudeau and Minister of Finance Bill Morneau unveil the Liberal government's budget on Tuesday. (Justin Tang/CP)

"We act for the years and decades to come," Morneau said in his maiden budget speech in the House of Commons.

"We act for our children and our children's children."

There's billions in new spending on infrastructure, Aboriginal Peoples, and transfers to middle and lower income Canadians in a budget blueprint framed by Morneau in terms of Canada's great post-war expansion of the last century.

"Confidence inspired investment," Morneau said of those high-growth, post-war decades. "Investment inspired confidence."

The Liberals claim their budget will create 100,000 jobs and boost national economic growth, as measured by gross domestic product, by half a percentage point per year - a huge increase on a $2 trillion economy.

The promised sunny future comes with an immediate fiscal chill.

The Liberals are projecting a $29.4-billion deficit in 2016-17, followed by a $29-billion shortfall the following year and almost $23 billion in 2018-19. Over the next five years, Tuesday's budget shows $113.2 billion in red ink, including a $14.3 billion shortfall for 2020-21 _ after the next scheduled federal election.

During last year's campaign, the Liberals promised "modest deficits" of no more than $10 billion over the course of their mandate and to balance the books by 2019-20.

"We act for our children and our children's children.''

Times, it seems, have changed: The word "deficit" appeared nowhere in Morneau's budget speech, nor did "spending." "Investment," on the other hand, registered 22 times.

The relatively slim, 269-page document is packed with spending promises for all and sundry on every page. The final Conservative budget of April 2015, by contrast, weighed in at 518 pages while ratcheting down spending in a government-wide effort to show an election-year surplus.

"I think budget 2016 runs the risk of over-reaching," said Craig Alexander, vice-president of economic affairs at the C.D. Howe Institute.

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Minister of Finance Bill Morneau speaks in the House of Commons on Parliament Hill in Ottawa on Friday, Jan. 29, 2016. (Sean Kilpatrick/CP)

"The reality is the amount of money they have to make an impact is relatively limited."

It's the central paradox of the first Liberal budget: while plunging the country back into deficit, Liberal spending is constrained by a worse-than-anticipated economy that forced the government to spread its election promises over a longer time frame.

Put another way, the federal deficit balloons by almost $25 billion in 2016-17, yet new budgetary measures are costed at only $11.57 billion. New spending the following year is forecast at $14.9 billion.

"The challenge the government has faced is how do you actually deliver on as many of your election promises as you can, but with a binding fiscal constraint?''

"The challenge the government has faced is how do you actually deliver on as many of your election promises as you can, but with a binding fiscal constraint?" said Alexander.

Over the last three years, federal spending was held to an average 0.4 per cent increase per year, said Mary Webb, senior economist at Scotiabank. The next three years show average increases of 6.3 per cent.

"How do you close this gap here?'' Webb wondered, short of tax increases or sharp cuts down the road.

The budget promises a slew of studies and commissions to develop more innovative economic policy, presumably with future price tags on top of the many funding announcements in the current budget.

These include:

  • $8.4 billion over five years to help indigenous communities, including2 billion on water and wastewater systems in First Nations and2.6 billion over five years for primary and secondary education on reserves.
  • $10 billion more over two years for a new Canada child benefit, absorbing and replacing both the Canada child tax benefit and the universal child care benefit.
  • $6.6 billion over two years for infrastructure, less than the10 billion promised in the Liberal election platform.
  • $3.4 billion over five years to increase the guaranteed income supplement top-up benefit for single seniors, and restore the old age security eligibility age to 65 from 67.
  • $2 billion over three years for a new strategic investment fund for infrastructure improvements at colleges and universities.
  • $2 billion over two years for a low-carbon economy fund, beginning in 2017-18.

Jean-Francois Perrault, chief economist at Scotiabank who served as a deputy minister at Finance Canada until the end of 2015, said the Liberals are over-confident in their projections of the budget's impact on Canada's economic growth.

But he repeatedly praised the budget's many specifics.

"There's a lot of interesting stuff in there,'' said Perrault. "It's a smartly designed piece of policy, no question about that."

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