Budget 2019: Federal government's deficit to grow to $19.8B in coming fiscal year

morneau

The federal Liberal government expects to sink deeper into the red this year, thanks to a federal budget Tuesday that's laden with election-year spending measures fuelled by a windfall of new revenue.

Tuesday's federal budget predicted a deficit of $19.8 billion for 2019-20, including Ottawa's $3-billion risk adjustment, compared with the $19.6-billion deficit predicted in the government's fall economic update despite billions in new income tax and excise tax revenue.

Offsetting the increased revenue, the budget plan includes new spending on a wide range of new items aimed at skills training, seniors and first-time homebuyers.

"We're going to work hard to build an economy that works for everyone, where every person has a real and fair chance at success," Finance Minister Bill Morneau said Tuesday.

"And we're going to make these investments to grow our economy for the long term – while we bring the books back towards balance."

The 2015 Liberal campaign platform predicted 2019 would be the year the government books tipped back into the black. The government, however, has long since abandoned any hope of limiting deficits to less than $10 billion a year, as promised four years ago.

"The opposition would like to see us make cuts very rapidly. Their idea is: balance the budget at any cost. Well, if we had taken that approach in 2015, we would not be where we are today, with a better outcome for middle-class Canadians," Morneau said.

The minister has focused instead on the size of the federal debt relative to gross domestic product, which – according to the campaign platform – was supposed to hit 27 per cent this year.

The federal debt as a percentage of GDP is expected to come in at 30.7 per cent in 2019-20, shrinking to 30.5 per cent in 2020-2021 and 30.0 per cent in 2021-22.

Looking into the future, the budget predicts a deficit of $19.7 billion for 2020-21 and $14.8 billion in 2021-22. The fall economic update had forecast a deficit of $19.6 billion for 2019-20, $18.1 billion for 2020-21 and $15.1 billion in 2021-22.

"Coming into the budget we were expecting revenue to overperform and it has overperformed," said Rebekah Young, director of fiscal and provincial economics at Scotiabank.

The new economic outlook in the budget predicts slightly softer economic growth this year, coming in at 1.8 per cent compared with the fall forecast for 1.9 per cent.

Young said the government has made a number of investments to help the economy, but they have yet to translate into business investment.

"There is a risk that there is a pullback in confidence levels and that investment just doesn't happen. So, I think that they are banking on taking a more optimistic tone," she said of the government.

The Canadian economy slowed in the final three months of 2018 to grow at an annual pace of 0.4 per cent, however job growth has remained strong at the start of this year.

Young noted Scotiabank's forecast for economic growth this year is 1.5 per cent.

Highlights from the 2019 budget

  • $1.7 billion over five years, and $586 million a year after that, for a Canada Training Benefit to help workers upgrade skills and acquire new ones while keeping their jobs. The benefit includes a $250-a-year tax credit to pay for training programs and access to employment insurance to cover living expenses for up to four weeks away from work.

  • $1.18 billion over five years to toughen border security, including hiring more judges to handle judicial reviews of asylum applications.

  • Measures to make housing more affordable, especially for first-time buyers, by letting them borrow $35,000 from RRSPs (up from $25,000) and having the Canada Mortgage and Housing Corp. contribute a small share of equity for down payments.

  • A federal deficit of $19.8 billion, including a $3-billion "risk adjustment," an increase of $200 million from last year's forecast. The Liberals' forecast again includes a gradual reduction in the deficit, but not quite as quickly as anticipated last year. By 2023-2024, the projected federal deficit is $11.4 billion.

  • $3.9 billion for farmers in supply-managed industries affected by new trade agreements with the United States and Asian countries.

  • $2.2 billion for municipalities' and First Nations' infrastructure projects, through a one-time boost to the amount distributed through the federal gas-tax transfer.

  • $1.2 billion over three years to enhance social services for Indigenous families and children, the main element in a package of spending aimed at Indigenous Peoples.

  • Lowering the interest rate on Canada Student Loans to the prime rate, from the current prime-plus-2.5-percentage-points.

  • Creating a new Canadian Drug Agency to centralize the evaluations of the effectiveness and efficiency of new drugs and buy in bulk nationwide, instead of province-by-province.

  • $500 million a year, starting in 2022, to subsidize the costs of drugs for rare diseases, whose high costs are distributed among very few patients.

  • $300 million over three years for rebates of up to $5,000 on electric or hydrogen-fuel-cell vehicles (with a maximum purchase price of $45,000).

  • $950 million for municipal governments to refit their own buildings for energy efficiency and to provide their own subsidy programs for private homeowners to do the same.

  • $50 million over five years to devise a new national dementia strategy.