Liberals ‘double down’ on deficit spending amid improving economic outlook

The federal Liberal government has surpassed its own deficit projections by billions of dollars thanks to a roaring economy, but it has earmarked much of those savings for increases to the Canada child benefit and a more generous tax credit for low-income earners.

In his spring budget, Finance Minister Bill Morneau expected to post a deficit of $28.5 billion for the current fiscal year. Thanks to rising revenues from an economy that leads the G7, that shortfall is now expected to be $19.9 billion.

Morneau’s fall economic statement pegs GDP growth at 3.1 per cent this year and 2.1 per cent next, with unemployment at rates not seen in more than a decade.

Rather than allocate those newfound dollars to further reducing the deficit, the government is pressing ahead with nearly $8 billion in new program spending over the next five years.

“With a little more wind in our sails, we’re doubling down on a plan with proven results and reinvesting in the middle class,” Morneau said Tuesday. “As the economy grows, we need to make sure the benefits are shared with the middle class, and those working hard to join it.”

Morneau said that the Conservatives and NDP in the last election had campaigned on balancing the books “at all costs,” but he said the Liberal plan to spend more is bearing fruit, evidenced by growth numbers that are among the best in the industrialized world.

“Our strong fiscal position allows us to do what other countries would like to do, but can’t afford to do,” he said.

Debt will grow

The working income tax benefit, a refundable tax credit for the lowest income earners, will also get a boost. While promising to provide more specifics in the 2018 budget, the government said it would spend an additional $500 million a year on the program starting in 2019. Working income tax benefit payments depend on family makeup, and whether a person is married or has dependents. In 2017, the income threshold for families with children was $28,576 in most provinces.

The Liberals will add $100 billion to the public debt over the next seven years, rather than over four years as projected in its first budget. The federal debt as a percentage of the economy will fall to about 30 per cent by the next election, nearing the pre-crash lows of 2008.

Pierre Poilievre, the Conservative finance critic, said the Liberal government has abandoned all pretense of fiscal prudence.

“This prime minister promised a small $10-billion deficit. Remember that? Today we learned the deficit is double that. There is literally not a single year, into the distant future, when this government projects, ever, eliminating the deficit.”

Conservative Leader Andrew Scheer said it was “terrible news” the economic update was devoid of a plan to return to a balanced budget. “Only a Liberal would ask Canadians to thank him for running deficits only double what he promised.”

The fall economic statement also included details of the small business tax cut announced by Morneau last week amid a firestorm of criticism from business owners angered by proposed tax changes to private corporations. The small business tax rate will drop from the current 10.5 per cent to 10 per cent on Jan. 1, 2018, before reaching nine per cent a year later. That policy change will cost an estimated $2.9 billion over the next five fiscal years.

For the first time, finance officials said how much they expect to recoup from a proposal to tighten rules around a tax planning measure called “income sprinkling,” one of the small business changes. The government has booked $1.2 billion in revenue over the next six years as a result of the new measure.

Poilievre said the Liberals are pushing ahead with some measures that target privately incorporated individuals while leaving some of the country’s wealthiest unscathed.

“Nothing in today’s proposal would see the family fortunes of this finance minister or this prime minister touched by any taxes at all. Once again, they have sheltered themselves,” he said.

Guy Caron, the NDP’s parliamentary leader, said the economic update was a damage control exercise intended to distract from some of the criticism Morneau has faced in recent weeks, namely the revelation that he did not put his holdings in a blind trust.

“This fiscal update could be summarized in two words: Morneau Shepell,” he said, speaking of the company the finance minister’s father founded. “The Liberal government is trying to deflect the tension away.… I can tell you right now it will not work.”

Other items in the fiscal update

While the big announcements in Morneau’s fiscal update were all about the middle class, buried toward the end of the 74-page document was a list of about $9.6 billion in government spending on a much wider swath of programs.

The spending, officials said, was not provided for in the 2017 budget, but the money has either been spent or set aside for the future with little or no fanfare.

The provisions include $1.4 billion over six years for the Department of Fisheries and Oceans and the Canadian Coast Guard to maintain its fleet.

The spending also includes $4 million to permanently destroy the criminal records of Canadians who engaged in consensual gay sex — once illegal but now allowed.

The government is also booking about $526 million over five years for Health Canada, the RCMP, Canada Border Services Agency and Public Safety Canada to handle the legalization of marijuana.

On top of that, about $150 million over six years is being set aside for devising and implementing new laws against drug-impaired driving.