Canada Politics5 things to watch for in Trudeau’s first budget
[This week in business, Finance Minister Bill Morneau, left, delivers the Liberal government’s first budget. THE CANADIAN PRESS/Sean Kilpatrick]
Finance Minister Bill Morneau will stand in the House of Commons on Tuesday and deliver his budget speech, signalling the release of Prime Minister Justin Trudeau’s maiden federal budget.
The budget document will lay out the details of the government’s economic stimulus plan, infrastructure spending, tax changes and other goodies. Some big changes have already been announced or implemented, such as reducing the tax rate for middle-bracket earners, beefing up the Canada Child Benefit and moving eligibility for Old Age Security benefits back to age 65.
Looking to Tuesday at 4 p.m., here are five things to watch for in the budget:
Deficit size
The Liberal campaign platform pledged deficits of about $10 billion per year in the first two years of the mandate. That plan went out the window in February when Morneau released revised fiscal numbers showing the cupboard was not only bare but had a big hole in it. Largely on the plunge in oil prices and slowed economic growth, November’s near-balanced budget shortfall of $3.9 billion for the 2016-17 fiscal year was revised much deeper to $18.4 billion. That means a $10-billion spending plan would dig the government towards a deficit of $30 billion for the fiscal year.
Another question is whether Morneau will go above $10 billion in spending. The debt-to-GDP ratio is 30 per cent, low among major economies and below that of Germany, the United Kingdom and the United States. While the Liberals indicate they don’t want debt-to-GDP to climb higher, economists have suggested the government should spend more to boost an economy whose unemployment rate has risen to 7.3 per cent.
CIBC economists suggested in a note this month that a $20-billion spending plan, leading to a $40-billion deficit, would be more appropriate, “but given the political sensitivities, the government might show something closer to $35 bn for 2016-17, while perhaps taking on some further stimulus charged to the outgoing year.”
Infrastructure funding
The Liberals campaigned on going into debt to boost the economy through infrastructure. The platform suggested about $5 billion in infrastructure spending this year and $5 billion in other measures.
But the devil’s in the details: Will projected infrastructure funding meet Canada’s infrastructure gap of about $120 billion, as estimated by municipalities? Will funding provide a short- or long-term boost to the economy?
Trudeau told Bloomberg on Thursday that the spending will not be “an instant influx of cash” like the stimulus following the 2008 financial crisis. He said it will be “unsexy” investments such as upgrades to subway signals and that it will “lay the groundwork and the foundation for better growth, better productivity over the long term.”
The Toronto Star reported the budget will change the funding formula for municipalities and deliver “recapitalization” funds that will help cities move faster on earmarked infrastructure projects like upgrades and repairs. But there’s also an expectation for funding of big projects like transit. Also watch for support for green infrastructure.
Jobs and employment
Observers will be watching for programs or assistance to help people who have lost their jobs, particularly those in the energy sector. There’s talk of incentives for the creation of construction jobs, particularly in provinces like Alberta hit by the oil price crash.
“There’s an opportunity to get those out of work construction jobs in the oil industry, for example, to work at building municipal infrastructure,” Trudeau told Bloomberg.
In another move to help the unemployed, the Liberals are expected to reduce the employment insurance wait time to one week from two and undo employment insurance restrictions related to a willingness to relocate. The government also wants to create jobs by encouraging companies to invest. CIBC noted “(T)he government could target tax relief at private capital investment, an area that is struggling in the wake of the oil price collapse.”
Low- and middle-income earners
The Liberal platform suggests that more support for low- and middle-income Canadians, probably aimed at Aboriginal Peoples, veterans and families.
The budget could propose a pilot project to provide a basic annual income as recommended by a parliamentary committee. The idea would lift Canada’s poorest people out of poverty with a guaranteed basic income. Additional support for low-income housing may also be provided.
On the tax front, Trudeau has said well-paid, incorporated doctors, lawyers and other professionals are using the small business tax regime to lower their personal taxes. The budget may take away these advantages, providing fiscal room for other spending such as the Liberals’ middle class tax cut.
Projections
Watch for projections such as debt to GDP and when the government plans to return to balance.
Balancing the books in the 2019-20 fiscal year, as originally promised, has slipped away under the latest fiscal numbers. But the government can still indicate a way forward. As RBC economists wrote in a note this month, “One way to achieve this would be to show a deficit around the $30 billion mark in FY2016/17 followed by a slight improvement to $25 billion in FY2017/18.”
Economic growth forecasts and oil prices are also worth watching for revisions. The finance department’s February outlook had forecast benchmark West Texas Intermediate at US$40 per barrel for 2016 and $52 per barrel for 2017. It pegged GDP growth of 1.4 per cent in 2016 and 2.2 per cent in 2017.
