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The Canadian government, led by Prime Minister Justin Trudeau, released new budget estimates that showed federal finances in much worse shape than expected, even before the governing Liberals move ahead with tens of billions of dollars in new campaign pledges.
The government is currently on track to run a deficit of C$26.6 billion ($20 billion) this year and C$28.1 billion in 2020, according to a fiscal update released Monday in Ottawa by Finance Minister Bill Morneau. That is above the C$19.8 billion and C$19.7 billion deficits projected in the governments last budget. Deficits in the five years between 2019 and 2023 will exceed projections by about C$35 billion.
While the revisions in large part reflect actuarial revaluations of federal employee pensions, its a much weaker starting point for the Liberals, who won a second -- albeit weakened -- mandate in Octobers election. The Liberals had pledged new annual measures expected to cost about C$15 billion annually over the next four years, though planned tax increases will buffer some of the impact on deficits.
It will be a difficult balancing act for Trudeau. Not only does he need to finance his own ambitious campaign pledges, he may need to accommodate new demands from provinces and opposition parties. All this while at the same time trying to reassure Canadians -- and credit rating agencies -- they remain fiscally prudent.
The updated deficit numbers include the personal income tax break that Morneau said he plans to move ahead with immediately. The measure would gradually raise the basic personal income tax deduction by about 20 per cent over the next four years.
Actuarial adjustments to pensions and other benefits added C$4.9 billion in spending in 2019, and about C$28 billion over five years. Other additional expenses since the March budget included a C$1.9 billion expense this year related to the Hibernia Dividend Backed Annuity Agreement.
The higher deficits come even as the federal governments revenue comes in slightly stronger than expected in 2019 and 2020, the update shows.
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