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Finance Minister Bill Morneau's second budget contained few
surprises, in line with expectations that Ottawa wants to wait
to see what impact U.S. President Donald Trump’s still-evolving
policies will have on Canadian competitiveness and trade before
committing to further stimulus or tax reform.
The budget blueprint, which is bound to be implemented given the
Liberal’s parliamentary majority, reinstated a fiscal cushion,
effectively a rainy day reserve set at C$3 billion a year to
guard against any unexpected event that could hurt the
government books, a move economists praise as prudent.
Bringing back the cushion widened the projected deficit in
2017-2018 to C$28.5 billion from C$27.8 billion forecast in
November, nearly three times the C$10 billion annual deficit
targeted by the Liberals during their 2015 election campaign.
But, combined with modest economic assumptions that look easy to
beat, the cushion should allow the government to trumpet a
better-than-expected performance as it nears the 2019 federal
election.
Still, the opposition Conservatives said the budget would make
life more expensive for Canadians at a time when Trump wants to
move in the opposite direction in the United States.
"(It) misses a critical opportunity to respond to Trump's
aggressive move forward to reduce taxes on both businesses and
individuals," interim party leader Rona Ambrose told reporters.
The move to drop an explicit goal of improving the debt-to-GDP
ratio over the course of the government’s four-year mandate
disappointed economists concerned that Canada is not prepared to
rein in deficits after trying to stimulate tepid growth with
infrastructure spending and tax cuts for families.
"In terms of ‘stay the course’ and ‘do no harm,’ I think the
budget achieved those goals, but I would have preferred they’d
left an explicit target some sort in terms of debt to GDP
declining or ideally a balanced budget,” said Craig Wright,
chief economist at RBC.
The Liberals had previously promoted the ratio, which at about
31.5 percent of GDP is low compared with many G7 rivals, as a
better measure of the nation’s debt burden than the deficit,
which had been eliminated under the previous Conservative
government.
Morneau repeatedly referred to the benefits of free trade,
pushing back on U.S. protectionism just a week after a pledge to
promote free trade was removed from the concluding statement of
the G20 meeting in Germany at the insistence of the United
States, Canada’s largest trading partner.
The finance minister touted the budget as “ambitious but
responsible" and laid out a plan to grow Canada’s goods and
services exports by 30 percent by 2025, a lofty goal given the
slow pace of export growth since the 2009 recession.
In continuing the Liberal’s pledge to increase taxes on the
wealthiest Canadians to help the middle class, the budget
promised to close a loophole that allowed high-income earners to
use private corporations to reduce income taxes. It also pledged
to tax ride-sharing programs, such as Uber [UBER.UL], at the
same rate as taxi corporations.
While the budget did not contain any measures aimed at cooling
Canada’s hot housing market, Morneau promised additional money
to gather housing data, seen as a possible first step to reining
in foreign investment or speculation that observers say has
created a bubble in Toronto, Canada’s largest city.
(Additional reporting by Leah Schnurr and David Ljunggren;
Editing by Dan Burns and Lisa Shumaker)
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