Tags: justin trudeau | economy | brightens | canada

Trudeau Spends More as Hot Economy Brightens Canada Outlook

Trudeau Spends More as Hot Economy Brightens Canada Outlook

Tuesday, 24 October 2017 04:44 PM

Canada’s government is projecting smaller deficits than it did in March, as stronger-than-expected growth gives Prime Minister Justin Trudeau more wiggle room.

The Liberal government cut its deficit projection for the fiscal year that ends March 31 to C$19.9 billion ($15.7 billion), down from C$28.5 billion in the March budget, figures released Tuesday show. It now expects a cumulative deficit over the coming five fiscal years of C$86.5 billion ($68 billion), compared with C$120 billion previously.

Canada’s economy is expanding faster than any country in the Group of Seven, and is projected to grow at a pace of 2 percent on average over the next five years compared to its previous estimate of 1.8 percent. With that improving picture comes some new spending commitments, though government expenditure as a share of the economy is projected to fall as Trudeau’s team balances dual objectives of reducing the debt ratio while expanding transfers to lower-income groups.

“With a little more wind in our sails, we’re doubling down on a plan with proven results and reinvesting in the middle class,” Finance Minister Bill Morneau told lawmakers in Ottawa, according to the prepared text of his speech.

The new spending announced Tuesday totals C$7.7 billion over six years, bringing total new spending since the March budget to C$19.1 billion over six years. The additional measures come at a time when the economy is already firing on all cylinders and the Bank of Canada is raising interest rates to slow growth, potentially creating conflict between fiscal and monetary policy. Governor Stephen Poloz’s next rate decision is due Wednesday.

No Balance

The Trudeau government announced it would index its marquee Canada Child Benefit to inflation beginning in July 2018, two years earlier than scheduled. That will cost C$5.6 billion over five years. It also expanded the Working Income Tax Benefit, which supplements the earnings of low income workers, beginning in 2019.

Despite the improved economic outlook, there is no forecast return to budgetary balance. The government is also proceeding with a new tax on investment income held in private corporations and will detail the measure in its 2018 budget. Canada’s economy will expand 3.1 percent in 2017 and 2.1 percent in 2018, Tuesday’s projections show.

The 2017-18 deficit number includes a reduction in the risk adjustment, to C$1.5 billion from C$3 billion, at the halfway point of the year. The risk adjustment remains at C$3 billion in coming years.

Tax Flap

The ratio of debt to gross domestic product is forecast to fall to 29.5 percent by 2020-21, compared to 31.3 percent forecast in the spring budget. The debt ratio is the last remaining fiscal anchor for the Trudeau government, which had campaigned on deficit caps and a return to balance only to later abandon those pledges.

Trudeau’s team has been backtracking on a trio of tax proposals unveiled by Morneau in July, and offered new details in its update on Tuesday. It will proceed to restrict so-called income sprinkling -- paying family members who don’t work for a firm -- with new legislation due later this year. That’s expected to raise at least C$215 million annually beginning in 2018-2019. The Liberals will also press in taxing investment income held in private corporations when it exceeds C$50,000 annually, releasing rules for that in its 2018 budget. It has abandoned a third proposal, which changed capital gains rules.

The summer tax changes sparked backlash that was later fueled by questions over Morneau’s own finances. He announced earlier this month that he will sell all his shares in Morneau Shepell Inc., a pension and benefit consulting business founded by his family that he once led. He alluded to the uproar in his speech, saying he’s had “frank discussions” in recent weeks that have been “humbling and inspiring.”

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Canada's government is projecting smaller deficits than it did in March, as stronger-than-expected growth gives Prime Minister Justin Trudeau more wiggle room.The Liberal government cut its deficit projection for the fiscal year that ends March 31 to C$19.9 billion ($15.7...
justin trudeau, economy, brightens, canada
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2017-44-24
Tuesday, 24 October 2017 04:44 PM
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