The federal Liberal government is projecting a deficit of at least $18.4 billion next year, nearly five times its $3.9-billion projection just three months ago, it was revealed today.
That means the shortfall could well exceed $20 billion when a number of big-ticket Liberal campaign promises are factored in.
So this is the third fiscal benchmark the Libs have blown through, following the $10-bil cap, and the balanced budget by 2010-20.
– Andrew Coyne (@acoyne) February 22, 2016
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The federal Finance Department can also be predicting a $15.5-billion deficit in 2017-18 – more than six times its estimate last fall of $2.4 billion.
The estimates released Monday don’t include vast amounts of dollars in Liberal spending commitments which are expected within the upcoming federal budget, such as infrastructure investments.
Related
- Federal budget coming March 22 – with a deficit that will likely surpass $20 billion
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Here’s what the economists are saying:
Douglas Porter and Robert Kavcic, BMO Capital Markets
Canadian Finance Minister Morneau announced that the Federal budget will be tabled March 22nd, and provided an up-to-date consider the fiscal situation. Ottawa is now looking at an $18.4 billion deficit for that upcoming fiscal year (FY16/17), but that could reach up to $30 billion on budget day. Observe that including an even larger contingency than Ottawa was using in past projections, of roughly $6 billion each year (previously $3 billion). Also, we’ve assumed additional stimulus of roughly $10 billion in year 1, as in the election platform, can make its way into the fiscal year starting April 1st. The updated outlook now also points to a deficit of roughly $26 billion in FY17/18, but the underlying shortfall in each of the two upcoming years could be $6 billion smaller when the economy performs as expected, and that’s permitted to flow to the bottom line.
We fully agree that the moderate dose of stimulus is an entirely appropriate reaction to current economic realities, but we would counsel caution in minding the dosage, for two distinct reasons: 1) The development restraints on Canada look to be structural in nature (a reset lower on commodity prices), and not a short-term cyclical phenomena that may be countered with a quick fiscal boost, and a pair of) an overly aggressive fiscal boost could do lasting damage to Canada’s finances, casting doubt around the country’s hard-won triple-A credit rating.
Avery Shenfeld, CIBC Economics
Finance Minister Morneau’ s updated picture from the economic backdrop heading into this year’s budget isn’t pretty, but that’s not news to anyone who has followed the deterioration in private sector forecasts. The 2016 real GDP forecast sits at 1.4%, nearly consistent with our projection, but that is down from 2% assumed within the November 2015 mid-year update, and nominal GDP has seen a deterioration because of the lower track for oil.
Finance Minister Morneau’s updated picture of the economic backdrop heading into the 2010 budget isn’t pretty
The outcome is that before you apply new measures in the budget, the status-quo fiscal outlook would be for any deficit of $18.4 bn, in contrast to a November estimate of $3.9 bn (along with a surplus of $2.7 bn assumed for the coming year early in the year 2015 Budget). Observe that the Liberal’s campaign pledge to run a $10 bn deficit was keyed off of that $2.7 bn surplus estimate for the status quo. Since that base case has deteriorated by a total of $21 bn, keeping the planned stimulus in place would now mean a deficit of roughly $30 bn. That’s still only 1 ?% of GDP, almost not a blow-up. The only real real question is whether the modest dose of stimulus pledged in the campaign (roughly a half-percent of GDP) is enough to counter the drag on the economy from low commodity prices.
BofA Merrill Lynch Global Research
With Morneau stating that it’s “difficult” to balance your budget by 2019-2020, we expect a long period of large deficits.
The main driver from the budget is a weaker profile for growth, with GDP growth slashed to 1.4% this season from 2.0% assumed previously. The deficit shortfall includes the outcome of new tax measures announced in December, although infrastructure stimulus impacts aren’t considered. New infrastructure spending, that could total $5B in 2016, could trigger an even larger deficit. Once we have argued, the federal government has room for roughly $30B in deficit spending this year if they desire to hold the net-debt-to-GDP ratio constant. Thus, even though the government has less room for further stimulus measures, because of the weaker deficit starting place, we think there is still some room to surprise to the upside relative to campaign promises.
For Bank of Canada policy, the implication is apparent: an adaptable, stimulus-ready Authorities is taking the pressure from monetary policy as the sole driver of growth. Thus, we reiterate our view that the BoC will remain on hold in 2016 despite weak economic growth. We see no rate hikes or cuts over our forecast horizon.
@VassyKapelos #politiciansansweringquestion #hastagmissed
– Kevin MacDonald CMA (@k_macd11) February 22, 2016
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With files from Canadian Press
