Budget 2017: Feds see slimmer deficits, make 'big bets' on high growth sectors

Broken Canadian piggy bank

The Trudeau government unveiled a budgetary crystal ball Wednesday that foresees slightly smaller deficits and a growth-lifting plan that places "big bets" on what the feds predict will be high-potential sectors.

Finance Minister Bill Morneau's second budget projects shortfalls of $23 billion for 2016-17, $25.5 billion next year and $24.4 billion in 2018-19, not including a $3-billion contingency fund – forecasts that have each shrunk between $1.5 billion and $2.1 billion since the fall.

Later in the outlook, the annual deficits are expected to be little bigger than previously thought.

But the government once again failed to outline a plan to return the books to balance, which it promised to do in its 2015 election platform.

The leaner-than-expected deficit projections are largely tied to Canada's stronger economic outlook.

However, the government is also anticipating changes in this year's budget to boost revenues via new tax measures and higher premiums on the employment insurance program.

The federal government's bookkeepers also found another $933 million over six years, thanks to previously planned defence commitments that were not spent as quickly as initially expected.

And while the document contained little new spending, it did offer fresh details on commitments made in the Trudeau government's curtain-raising 2016 budget, as well as sharpened strategies for enhancing skills development and driving the so-called innovation economy.

"To make the most of the opportunities that the new economy offers, the government will equip Canada's workers with the skills and tools they need to succeed," reads the 278-page budget.

"It will also make big bets in high-growth sectors of the economy, including clean technologies, digital industries and agri-food, to secure Canada's place as a world-leading centre for innovation."

The Liberal government is banking on that plan to improve the country's growth trajectory and eventually help eliminate the deficit.

The promising sectors identified by the feds also included health sciences, clean resources and advanced manufacturing.

The budget called for the creation of growth strategies and more available cash to help each of these industries prosper.

The government also pledged $125 million to launch an artificial intelligence institute.

To provide further support, the budget contained commitments to expand federal investments in venture capital, to ease access to public procurement contracts for young, innovative firms and to develop an intellectual-property strategy, which is considered critical by some industry players.

"It's probably worth a shot," Scotiabank chief economist Jean-Francois Perrault said of the Liberal's plan to take a more hands-on approach by pinpointing specific sectors with potential.

Perrault said other countries have had success in the interventionist approach for particular sectors, when it's done intelligently. He was encouraged the federal government seemed intent on taking more of a free-market approach.

Morneau's budget also re-allocated infrastructure cash to add $150 million to a five-year, $800-million commitment the Liberals made in last year's budget to support "superclusters" – a "dense" area of business activity that includes post-secondary institutions, companies, specialized talent and necessary infrastructure.

When it came to the headline numbers, the finance minister gave himself more breathing room on his so-called fiscal "anchor" to lower the debt-to-GDP ratio by the end of the Liberal mandate.

The ratio – a measure of the public debt burden – is now projected to only drop below 2016-17 levels in 2020-21.

The budget predicted a deficit of $15.8 billion in 2021-22, the final year of its forecast horizon.

The government also reinstated a $3-billion contingency fund, which increased the projected deficits swell to $28.5 billion next year, $27.4 billion in 2018-19, $23.4 billion in 2019-20, $21.7 billion in 2020-21 and $18.8 billion in 2021-22.

Asked about the lack of a road map to return to balanced books, Morneau sidestepped and told reporters the government's approach is growing the economy.

"Our plan is to be responsible every step of the way," Morneau said. "We're making every dollar count."

The Liberals won the 2015 election on a platform that vowed to invest billions in measures like infrastructure and child benefits as a way to re-energize Canadian growth.

They planned to run deficits to finance the investments, but promised annual shortfalls would not surpass $10 billion during the first couple years of their mandate.

The Liberals also vowed to return to balance by 2019-20. Since taking office, however, the government abandoned those promises, citing a weaker-than-expected economy.

None of the government's forecasts Wednesday accounted for the potential fallout from policy changes being discussed in U.S., which many fear would have major consequences for the Canadian economy.

The U.S. administration is eyeing cuts to corporate and personal taxes, the renegotiation of the North American Free Trade Agreement and a possible border tax.