OTTAWA — Finance Minister Bill Morneau plunged Canada towards a deficit of $29.4 billion Tuesday in a big spending budget that blew through all the Liberals' fiscal anchors, showed no path towards balance but delivered several of the party's key election promises.
The budget, titled "Growing the Middle Class," tried to make the case for more government spending, saying that global growth has slowed to its weakest pace since the 2008 recession and that investments are needed to boost the economy and put Canadians back to work.
Prime Minister Justin Trudeau shakes hands with Finance Minister Bill Morneau following his federal budget speech in the House of Commons on Parliament Hill in Ottawa on Tuesday, March 22, 2016. (Photo: Adrian Wyld/CP)
"Canadians told us two things: Help me and my family, and make investments in the future," Morneau told reporters Tuesday. With low interest rates, the finance minister said, the government believes now is the right time to make investments and help the economy grow.
Over the six years, the federal government will make "targeted investments" of $50.2 billion, spending that it says will raise the GDP by 0.5 per cent next year, 1.0 per cent the following year, and "is expected to translate into 100,000 jobs created or maintained by 2017-2018."
But in order to do that — and to boost program spending by $20 billion this year alone — the budget deficit is expected to reach $29.4 billion. The following year's deficit is projected to be $29 billion, with deficits slowly declining every year to a low of $14.3 billion in 2020-2021 — the last year in the forecast.
No path back to black
The Liberals' first budget presents no plan to achieve balance. But when pressed by reporters, Morneau said the government may get to balance in five years — in 2020-2021.
"We think that with a growth rate that is higher than expected, we can have a balanced budget in about five years," he said.
During the election campaign, the Liberals promised to get back into black by 2019-2020. In its budget, the new government says it "will set a timeline for balancing the budget when growth is forecast to remain on a sustainably higher track."
Morneau said the government was being "prudent."
C.D. Howe: A 'reckless' spending plan
Alexandre Laurin, C.D. Howe's research director, called the Liberals' first budget "reckless."
The Liberals are acknowledging that they are relying on growth from the new spending to balance the books, Laurin said. "It's the same logic," he noted, that led to the Conservatives' infamous election attack line mocking Justin Trudeau's statement that "budgets balance themselves."
"We are going to end up after those next four or five years with a government that is bigger in size with an economy that doesn't grow very fast," Laurin told The Huffington Post Canada. "There will be huge deficits. The federal debt will increase by $100 billion and risk that the debt can spin out of control."
Laurin suggested that the Grits' projection of 100,000 jobs wasn't much, but he did acknowledge that the current debt-to-GDP ratio is sustainable for now.
The Liberals on Tuesday broke another election promise that the federal debt-to-GDP ratio would fall in every year of their plan.
"We are going to end up after those next four or five years with a government that is bigger in size with an economy that doesn't grow very fast."
— Alexandre Laurin, C.D. Howe"
Instead, the debt-to-GDP ratio is projected to increase slightly in the coming years and the government says it is "committed to reducing" it in five years, in 2020-2021 — after the next election.
But all those deficits made way for lots of spending.
Canada Child Benefit coming in July
The budget's biggest ticket item is the Canada Child Benefit, a monthly tax-free benefit that replaces the Canada Child Tax Benefit and the Universal Child Care Benefit and will hand thousands of dollars more a year to middle-income and low-income families.
It was a touchstone of the Liberals' election platform, and the government says it believes it will lift 300,000 children from poverty. It comes into effect in July.
Infrastructure spending is second largest item with $11.9 billion over five years – including $3.485 billion in 2016-2017 and $5.025 billion in 2017-2018 for green infrastructure, social infrastructure and public infrastructure. That is slightly less than the $16.9 billion over four years that Prime Minister Justin Trudeau promised during the election campaign. But the budget states $120 billion will be invested over 10 years, with a second phase focused on broader and more ambitious projects to be announced at a later date.
Minister of Finance Bill Morneau is accompanied by Prime Minister Justin Trudeau as he makes his way to deliver the federal budget in the House of Commons on Parliament Hill in Ottawa on Tuesday, March 22, 2016. (Photo: Sean Kilpatrick/CP)
Right now, money will specifically go towards what Trudeau has called "unsexy" projects, such as upgrades to subway tracks and bridges, the purchase of new low-floor buses and Toronto streetcars and construction for new light rail transit lines in Greater Vancouver and Ottawa with cash allocated to municipalities with higher ridership.
The Liberals are also investing significant money in clean-water distribution and treatment infrastructure and in affordable housing and retrofits to existing social housing.
There are also new investments not included in the Grits' platform such as money to upgrade federal infrastructure projects such as airports, national parks, border controls and cleanup of federally contaminated sites.
Good news for veterans, students, indigenous Canadians
Some of the other big winners in Tuesday's budget included students, who will benefit from big investments in the Canada Student Grant program; veterans, who will receive easier access to benefit programs and more generous benefits for those who are injured or impaired; researchers and educators, who will see more than $2 billion in new investments; the arts and culture sectors, which will receive more grants than promised during the campaign; and indigenous Canadians, who will see overall larger-than-promised investments in their future.
Morneau noted that the $8.4 billion over five years set aside to improve the socio-economic conditions of indigenous peoples was significantly larger than what was offered in the ill-fated Kelowna Accord. Although the Liberals chose not to invest as much in First Nations education as promised in the campaign, they set aside more money to repair and construct schools, to improve the First Nations Child and Family Services program, to improve housing in indigenous communities, support early learning, skills training, and new shelters for victims of family violence in First Nations communities.
Canadian Centre for Policy Alternatives: 'A left turn'
Sheila Block, a senior economist with the Canadian Centre for Policy Alternatives, praised the Liberals' budget for easing access to employment insurance — especially in areas such as Alberta and Newfoundland and Labrador, which have been hard it by the plunge in oil and commodity prices — and for doing a lot to reduce child poverty, as well as alleviating seniors' poverty by increasing the Guaranteed Income Supplement.
"This budget made a left turn, which is great, but it didn't step on the gas," she said.
The new government indefinitely postponed its election promise of reducing the small business tax rate to nine per cent. Morneau also confirmed that the Liberals are ditching a promise to cap how much high-income individuals can claim through stock option deductions. The government had heard from small firms and innovators who used the measure as a way to legitimately compensate employees, he said, and consequently changed its mind. "It's not in our plan."
Some things left on sidelines
The Liberals' budget also postponed, for now, a promised multimillion-dollar plan for flexible parental leave and better access to compassionate care benefits for those who provide care for seriously ill family members.
The budget did not include the Liberals' promise to invest $3 billion over four year in better home care services, such as in-home caregivers, financial support for family care, and palliative care.
Morneau said there is no more money right now. "We believe we have put in the fiscal framework what we should be putting in at this time, with respect to all of the negotiations going on in multiple areas."
"We think that with a growth rate that is higher than expected, we can have a balanced budget in about five years."
— Bill Morneau
The Liberals did include $400 million, starting next year, for a childcare plan to be negotiated with the provinces and territories.
The new government also used budget 2016 to signal a change in tone. It announced a return of the Court Challenges Program, which provided financial aid for important language and equality cases, and which was cancelled by the Tories.
It also mentioned several hallmarks of the Conservatives' tenure that will be scrapped, such as:
- The Balanced Budget Act;
- Income splitting for couples with children;
- Children's fitness and arts tax credits, which will be phased out over two years.
The Liberals say they did this to simplify the tax code. They also eliminated the Education Tax Credit and the Textbook Tax Credit.
Later in their budget, however, they announced a new Teacher and Early Childhood Educator School Supply Tax Credit, worth 15 per cent on up to $1,000 worth of eligible supplies.