(Sean Kilpatrick/The Canadian Press)

Federal budget expected to have more wiggle room, even with weaker outlook

Economy posted solid numbers for much of last year and employment has remained particularly strong

The improved economy is expected to give the Trudeau government more fiscal room than anticipated in next week’s pre-election budget — but a wobbly economic finish to 2018 means conditions could look much different as the October vote approaches.

An abrupt deceleration in economic growth over the final three months of 2018 has dimmed the outlook for this year. Last week, the Bank of Canada predicted a weaker economic performance through the first half of 2019, compared to its previous forecast of just a short slump.

Still, the economy posted solid numbers for much of last year and employment has remained particularly strong. Some experts predict it’s been enough of a boost to give the Liberal government billions more in fiscal wiggle room.

With extra money, hints of tougher times ahead and an election just months away, the government is expected to use up all that space based on the argument the economy will need stimulative investments.

Scotiabank chief economist Jean-Francois Perrault said larger-than-expected government revenues last year mean Ottawa could have as much as $5 billion more than it had predicted in its November update to dedicate to new pre-election spending, or even tax cuts.

“It’s this really fascinating mix of political challenges with some uncertainty on the economic side,” said Perrault, a former assistant deputy minister under Finance Minister Bill Morneau.

“The Trudeau government is clearly in more difficulty now (politically) than it was six months ago. They’re probably going to be looking for something on the budgetary side that will increase their chances of being elected.”

CIBC chief economist Avery Shenfeld also sees the Liberals in a stronger fiscal starting position, but with economic headwinds in the forecast.

“There’s good news and bad news, in a sense, for the fiscal path,” said Shenfeld, who also noted the effects of an approaching election on budget decisions.

“I’m expecting cheques to go out somewhere. Remember that in the last election the party that won was the one party not promising to balance the budget… The recent sluggishness of the economy is just one more reason to expect a budget that sends out some goodies.”

Morneau has said his fourth budget will focus on helping workers get the skills they need and on ensuring seniors feel optimistic about their futures. The government, he added, is looking for ways to make homes more affordable for millennials, while keeping the housing market stable.

READ MORE: Liberals must let Wilson-Raybould come back to committee, opposition says

READ MORE: Canada bans Boeing 737 Max 8 plane following fatal crash

The Liberals also intend to use the budget to lay out how they will achieve their two main goals on pharmacare: keeping costs down and ensuring better coverage for everyone.

The budget will also update the country on the state of the federal books, which could prove to be an important ballot-box concern for many voters.

The Liberals’ fiscal record has faced regular criticism from the Opposition and some economists. In particular, the Conservatives have targeted the Liberals over their decisions to ditch their 2015 election vow to run only modest annual shortfalls and to eliminate the deficit by 2019.

Instead, the Liberals have posted deficits of more than $18 billion in each of the last two years, with no timeline to achieving balance.

In November’s update, the government projected annual deficits of $18.1 billion in 2018-19, $19.6 billion in 2019-20 and $18.1 billion in 2020-21.

Morneau has shifted his focus to reducing the net-debt-to-GDP ratio — a way of describing how burdensome debt is, relative to the national economy— each year.

TD senior economist Brian DePratto recalls how in past budgets the Liberals have enjoyed “growth dividends” because the economy had outperformed expectations. The extra fiscal room enabled them to use up the space without affecting the debt-to-GDP anchor.

This time, however, things are different because the overall economic picture has “clearly degraded,” he said.

“It’s a little bit of a funny one because there’s a lot of these different currents playing out at once that differ a bit from what we’ve seen in different years,” DePratto said.

“There’s also the challenge of, well, if we’re going into a slower-growth period where the risks are mounting, perhaps there’s more impetus for spending regardless of anything else.”

Andy Blatchford, The Canadian Press


Like us on Facebook and follow us on Twitter.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Penticton curlers reflect on B.C. Winter Games

If they could do it again, they would. A group of junior… Continue reading

Penticton RCMP seeking suspect of vandalism to Chinese place of gathering

RCMP are investigating a reported incidence of vandalism after an alleged racially-motivated attack

Campaign promotes Syilx/Okanagan language and culture

To support initiative, Nsylixcen t-shirts and water bottles are being distributed across Okanagan

Penticton bylaw officers tear down homeless man’s camp

Bylaw had “serious” safety and fire concerns about the dwelling in the Skaha Lake parking lot.

Interior Health leading the way with innovative therapy for stroke patients

Percentage of ischemic stroke patients who received treatment has risen dramatically

Morning Start: Abraham Lincoln’s dog was also assassinated

Your morning start for Thursday, February 27, 2020

UPDATE: Boy, 5, will donate organs after crash that killed father, son on B.C. highway

Mike Cochlin and sons Liam and Quinn were travelling on Highway 5A

Wet’suwet’en hereditary chiefs to meet today with federal and B.C. governments

Nationwide rail and road blockades have been popping up for weeks

Shuswap boy wins stick from hockey hero with rock, paper, scissors

Chase’s Payton Koch’s exchange with Minnesota Wild’s Kevin Fiala caught on camera

Chinatowns across Canada report drop in business due to new coronavirus fears

Around the world, about 81,000 people have become ill with the virus

VIDEO: Province promotes ‘lifting each other up’ on 13th annual Pink Shirt Day

Students, MLAs, community members gathered at B.C. Parliament Buildings Wednesday

Prepare for new coronavirus like an emergency, health minister advises

About 81,000 people around the world have now become ill with COVID-19

Winnipeg police investigating graffiti on RCMP and other buildings

Manitoba Justice Minister Cliff Cullen denounced the vandalism

COLUMN: Extending Employment Insurance sickness benefits

One of the challenges, with so many different events occurring in Ottawa,… Continue reading

Most Read