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Liberal government set to add $31.8B to national debt

Federal Liberal government turn to infrastructure bank for economic help amid deeper deficit outlook


 
Finance Minister Bill Morneau makes an announcement on housing in Toronto Monday, October 3, 2016. (Nathan Denette/CP)

Finance Minister Bill Morneau makes an announcement on housing in Toronto Monday, October 3, 2016. (Nathan Denette/CP)

OTTAWA – The Trudeau government’s latest update on federal finances shows that slow growth is taking a toll on the books — but they say they have a cure: a long-term plan to attract billions in new private-sector investment.

Finance Minister Bill Morneau laid out plans Tuesday to lift the sluggish economy with help from a new infrastructure bank. He pledged to prime the bank’s pump with $35 billion worth of public money as a way to bring in foreign capital.

But at the same time, he warned Canadians that tougher-than-expected economic hurdles still lie ahead.

Morneau tabled fresh projections that included an additional $31.8 billion of red ink over the next five years. The deficit for 2016-17 is expected to be about $25 billion, and the statement foresees shortfalls every year across the outlook.

Tuesday’s document contained no projection for a return to balance.

The infrastructure bank was the headline item among several new measures Morneau is counting on to help Canada overcome what the Finance Department described as a “new norm” of slower economic growth.

Morneau also announced changes aimed at drawing more talented immigrants to Canada and the creation of a hub with a mandate to lure more foreign investment. The new initiatives echo some of the advice Morneau received from his council of external experts, who were hand-picked to help the government boost economic growth.

They come on top of existing commitments to help the economy, such as investing billions in infrastructure and enhanced child-benefit cheques.

Together, the measures will help Canada succeed over the long term, Morneau insisted during a news conference prior to delivering his statement in the House of Commons.

“We are moving forward on the investments that we outlined in Budget 2016,” he said. “What we’re announcing today is how we can amplify those investments.”

MORE: Canada’s uneven journey to the new normal 

Looking at the latest economic and fiscal projections, which are based on the forecasts of private-sector economists, the Liberal government is staring at a significant challenge.

The Finance Department is now predicting the treasury to run a total of $114.9 billion in deficits between 2016-17 and 2020-21. In comparison, last spring’s federal budget predicted the government would run $83.2 billion worth of shortfalls over the same period.

The fall update also added another deficit year to the end of its outlook — a $14.6-billion shortfall in 2021-22.

When asked about the outlook’s lack of a timeline to eliminate the deficit, Morneau insisted the government would run shortfalls in a “fiscally responsible” way.

To ensure it will be a prudent approach, he reiterated Ottawa’s vow to stick its so-called “fiscal anchor” to lower the country’s net debt-to-GDP ratio — a measure of the public debt burden — from today’s level in five years.

“What we want to tell Canadians is that we believe that we should be focusing on making investments for today and for tomorrow that are going allow us to have a higher level of economic growth in the future,” he said.

“That’s of critical importance to us.”

MORE: The Trudeau government finds its fiscal anchor

Political opponents assailed the government’s plan to fund the infrastructure bank using billions in public cash — money the Liberals had already committed to provinces and municipalities.

“What is he going to say to those town councils and those mayors about his promise to them?” said interim Conservative leader Rona Ambrose.

“What has changed? We haven’t heard anything today about creating a better economic climate in this country for investment. Canadians aren’t investing. Why does he think foreign investment is going to pour into this country for this infrastructure bank?”

Guy Caron, the New Democrats’ parliamentary finance critic, warned that the Liberal plan would lead to higher costs for Canadians through user fees and tolls, which are widely viewed as necessary to provide steady returns for investors.

“The Liberals never promised during the campaign to privatize infrastructure,” Caron said.

During the election campaign, the Liberals promised to create an infrastructure bank but provided few details. They said it would use Ottawa’s strong credit rating and lending authority to provide low-cost financing that would help make it easier and cheaper for communities to build projects.

The Liberals won last year’s election on a platform that also promised annual deficits of no more than $10 billion over the next couple of years to allow them to spend billions on infrastructure projects as a way to deliver a boost to the struggling economy. The Liberals had also vowed to balance the books by 2019-20.

But the government later blamed even weaker conditions for a revised forecast in the March budget of five straight annual deficits. The outlook on Tuesday predicts a sixth shortfall.

Many global experts, including the International Monetary Fund, have applauded Canada’s decision to try and generate growth through extra government spending, particularly since it carries a much lower debt burden than most of its industrialized peers.

Morneau’s updated figures now predict deficit this year to be $25.1 billion — slightly larger than the $23.4 billion projected in last spring’s budget. These figures do not include the adjustment set aside for risk.

The deficit is expected to expand to $27.8 billion in 2017-18.

For now, the government has eliminated the $6-billion annual contingency fund that it had included in the March budget to cover unexpected problems. The accounting move makes the government’s deficit figures appear slimmer.

The deficit is gradually expected to shrink over the coming years to $14.6-billion in 2021-22, not including any provisions set aside for a rainy day.

Among the other measures announced Tuesday, Ottawa is setting up a global skills strategy that will speed up work permits and visas for foreign workers.

The government is also creating a new Invest in Canada Hub to attract foreign investment. It will relax foreign investment restrictions a little bit — revising the national security rules and moving the threshold for reviewing foreign takeovers to $1 billion starting in 2017, two years ahead of schedule.


 

Liberal government set to add $31.8B to national debt

  1. How does this:
    “Finance Minister Bill Morneau says the country is on track to pile another $31.8 billion onto the national debt over the next five years”
    jive with:
    “.. predict the treasury will run a total of $114.9 billion in deficits between 2016-17 and 2020-21.”
    or even this:
    Morneau’s updated figures now predict deficit this year to be $25.1 billion … . The deficit is expected to expand to $27.8 billion in 2017-18.”

    Assuming only interest payments are being paid to service the debt (i.e. no principal payments), the debt will increase by the sum of the individual deficits – which means the the debt should increase by about $114.9B rather than the $31.8B the article is claiming. Am I missing something here?

  2. Basically the Liberals are counting on privatization to pay for their excess.
    Bill Morneau also made it easier to bring in foreign labour. What about jobs for Canadians? The Liberals just told us to get use to ‘job churn’, and crappy short term jobs. Sure doesn’t sound like a labour shortage to me.
    You can tell Justin Trudeau and his ministers what you think below.

    Justin.trudeau@parl.gc.ca
    John.mccallum@parl.gc.ca
    Bill.morneau@parl.gc.ca
    Dominic.leblanc@parl.gc.ca
    Bardish.chagger@parl.gc.ca
    Chrystia.freeland@parl.gc.ca
    Kirsty.duncan@parl.gc.ca
    Catherine.mckenna@parl.gc.ca
    Melanie.joly@parl.gc.ca
    Maryam.monsef@parl.gc.ca
    Patty.hajdu@parl.gc.ca
    Stephane.dion@parl.gc.ca
    Jean-Yves.Duclos@parl.gc.ca
    Diane.lebouthillier@parl.gc.ca
    Ralph.goodale@parl.gc.ca
    Lawrence.macaulay@parl.gc.ca
    Scott.brison@parl.gc.ca
    Carolyn.bennett@parl.gc.ca
    Jody.Wilson-Raybould@parl.gc.ca
    Judy.foote@parl.gc.ca
    Jane.philpott@parl.gc.ca
    Marc.garneau@parl.gc.ca
    Marie-claude.bibeau@parl.gc.ca
    Jim.carr@parl.gc.ca
    Kent.hehr@parl.gc.ca
    Harjit.sajjan@parl.gc.ca
    Maryann.mihychuk@parl.gc.ca
    Amarjeet.sohi@parl.gc.ca
    Carla.qualtrough@parl.gc.ca

    It would also pay to email your local MP, the closest Liberal MP, and the leaders of the opposition.

    Rona.ambrose@parl.gc.ca
    Tom.mulcair@parl.gc.ca

    Of you can email any MP postage free.

    MPs Name
    House of Commons
    Ottawa, Ontario
    Canada
    K1A 0A6

  3. Anyone else find it odd that Macleans is the only major Canadian news publication to ignore the charges against Kathleen Wynne’s staff? They had a little blurb in their main page yesterday, and it was shuffled off the to some secondary page within minutes. I can’t even find the article now.

  4. The presumption that deficit translates into debt is simplistic. Of course a portion of government spending comprises debt service and retirement of old debt. Also, to the extent that current deficit creates future revenue the one-to-one relationship ignores timeline. Historically, the per capita national debt peaked in the 1990s and then after a steady decline experienced an upward bump during the Harper regime; nevertheless, it currently stands at 2/3rds of the 1990s peak.
    The notion that government spending can include a component of investment in economic activity has a long tradition going back to day 1. This begs the question as to why industry and financial enterprise has such a low level of engagement. Interestingly, one of the few ‘hot’ sectors is housing where individuals are actively investing and driving economic activity – equally interesting is how politicians and financial managers, who are arguably doing a pretty lame job, are opposed to this. One hoary old argument is the ‘picking winners and losers’ meme which is easily supported based on selective editing given that investment, especially government investment, comes with a degree of risk; in opposition is the fact that government is virtually the only entity with sufficient scope to implement major infrastructure. The Harper government spent large on Alberta oil and gas (~$12B per year net benefit according to WTO and IMF analysis) predicated on $145 per barrel bitumen and ‘pre-shale’ gas prices largely feeding back into the economy: that bubble burst but even back in the day a large portion of that largess ended up in the pockets of Korean and Chinese heavy equipment and steel companies while a lot of heavy equipment manufacturing fled Canada and bitumen processing capacity ended up in US refineries. Following that crash, the fed has had to transfer billions in ’emergency’ funds to oil and gas producer provinces.
    One problem is that government investment needs to be driven by data and sophisticated market analysis and not political dogma. This is complicated by provinces chronically crying poverty and making their own discordant economic development plans.

    • Deficit translates directly to debt in the absence of debt retirement – it is that straightforward. And, I would be quite surprised if this government (especially this government) is making anything more than the minimum payments required (i.e. interest only). And, even if there is a debt retirement component, in order for cumulative deficits on the order of $115B to result in an increased debt of only about $32B, there would have to be a cumulative debt repayment of about $77B (115 – 32). This would mean that 67% (77/115) of the accumulated deficits would be going to debt repayment, which is unlikely.

      From reading other articles, I can conclude that the article is incorrect.
      Many other publications are saying something like “the government will add a total of $31.8-billion more to *deficits* [emphasis mine] than was expected in the last budget”. Which at least makes somewhat more sense.

      Now one can certainly argue, as the Liberals now are doing, that the important number is debt-to-GDP ratio rather than the absolute debt or deficit. However, that doesn’t excuse Macleans from not knowing the difference between deficit and debt.

  5. As Bob Marley said ‘one day the bottom will fall out’.
    Canadians who voted Liberal were promised deficits and debt from the Trudeau government and in turn they gave a majority government to him…we really have nothing to complain about.
    To have no plan to pay off this debt by Mr. Morneau is at least irresponsible…to double triple and quadruple the election promise is bordering on stupidity.
    When interest rates go up and as of this morning mortgages have started to increase, Canadians or at least those who voted Liberal will get exactly what they voted for.
    What a great match we have both federally and provincially (in my case Ontario) to face these economic hardships in the near future. Our values have changed; haven’t they?

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