(Sean Kilpatrick/The Canadian Press)

Federal budget expected to have more wiggle room, even with weaker outlook

Economy posted solid numbers for much of last year and employment has remained particularly strong

The improved economy is expected to give the Trudeau government more fiscal room than anticipated in next week’s pre-election budget — but a wobbly economic finish to 2018 means conditions could look much different as the October vote approaches.

An abrupt deceleration in economic growth over the final three months of 2018 has dimmed the outlook for this year. Last week, the Bank of Canada predicted a weaker economic performance through the first half of 2019, compared to its previous forecast of just a short slump.

Still, the economy posted solid numbers for much of last year and employment has remained particularly strong. Some experts predict it’s been enough of a boost to give the Liberal government billions more in fiscal wiggle room.

With extra money, hints of tougher times ahead and an election just months away, the government is expected to use up all that space based on the argument the economy will need stimulative investments.

Scotiabank chief economist Jean-Francois Perrault said larger-than-expected government revenues last year mean Ottawa could have as much as $5 billion more than it had predicted in its November update to dedicate to new pre-election spending, or even tax cuts.

“It’s this really fascinating mix of political challenges with some uncertainty on the economic side,” said Perrault, a former assistant deputy minister under Finance Minister Bill Morneau.

“The Trudeau government is clearly in more difficulty now (politically) than it was six months ago. They’re probably going to be looking for something on the budgetary side that will increase their chances of being elected.”

CIBC chief economist Avery Shenfeld also sees the Liberals in a stronger fiscal starting position, but with economic headwinds in the forecast.

“There’s good news and bad news, in a sense, for the fiscal path,” said Shenfeld, who also noted the effects of an approaching election on budget decisions.

“I’m expecting cheques to go out somewhere. Remember that in the last election the party that won was the one party not promising to balance the budget… The recent sluggishness of the economy is just one more reason to expect a budget that sends out some goodies.”

Morneau has said his fourth budget will focus on helping workers get the skills they need and on ensuring seniors feel optimistic about their futures. The government, he added, is looking for ways to make homes more affordable for millennials, while keeping the housing market stable.

READ MORE: Liberals must let Wilson-Raybould come back to committee, opposition says

READ MORE: Canada bans Boeing 737 Max 8 plane following fatal crash

The Liberals also intend to use the budget to lay out how they will achieve their two main goals on pharmacare: keeping costs down and ensuring better coverage for everyone.

The budget will also update the country on the state of the federal books, which could prove to be an important ballot-box concern for many voters.

The Liberals’ fiscal record has faced regular criticism from the Opposition and some economists. In particular, the Conservatives have targeted the Liberals over their decisions to ditch their 2015 election vow to run only modest annual shortfalls and to eliminate the deficit by 2019.

Instead, the Liberals have posted deficits of more than $18 billion in each of the last two years, with no timeline to achieving balance.

In November’s update, the government projected annual deficits of $18.1 billion in 2018-19, $19.6 billion in 2019-20 and $18.1 billion in 2020-21.

Morneau has shifted his focus to reducing the net-debt-to-GDP ratio — a way of describing how burdensome debt is, relative to the national economy— each year.

TD senior economist Brian DePratto recalls how in past budgets the Liberals have enjoyed “growth dividends” because the economy had outperformed expectations. The extra fiscal room enabled them to use up the space without affecting the debt-to-GDP anchor.

This time, however, things are different because the overall economic picture has “clearly degraded,” he said.

“It’s a little bit of a funny one because there’s a lot of these different currents playing out at once that differ a bit from what we’ve seen in different years,” DePratto said.

“There’s also the challenge of, well, if we’re going into a slower-growth period where the risks are mounting, perhaps there’s more impetus for spending regardless of anything else.”

Andy Blatchford, The Canadian Press


Like us on Facebook and follow us on Twitter.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Mental Health: Fractured services leave community to fill gaps

Greater Victoria service providers working together to help youth

Bag containing meat, sewing needles found by dog owner in Cordova Bay

Saanich police don’t believe it’s a trend

UVic creates emergency bursary for students facing hardships due to COVID-19

Students can apply by emailing the financial aid office

Colwood Spring Clean-Up postponed, branch drop-off continues

Strict measures in place for branch drop-off

Peninsula organizations fund food bank ahead of ‘looming crisis’

Saanich Peninsula Lions Food Bank receives more than $5,000 from local organizations

‘Hold our line’: 29 new cases of COVID-19 announced in B.C.

Saturday’s number of new cases marks the lowest in weeks.

Two inmates found positive for COVID-19 at federal prison in B.C.; other tests pending

15 staff self-isolating waiting results, refusal to work notice sent, says correctional officer

Critic, workers’ group ‘disappointed’ Trudeau chose Amazon to distribute PPE

Amazon Canada said in an email to The Canadian Press that it is working with Canada Post, Purolator

Full World COVID-19 update: National Guard collect ventilators in New York; Spain, Italy improve

Comprehensive coronavirus update with news from around the world.

Nanaimo’s Harmac mill works to fill doubled pulp order for medical masks and gowns

Mill’s president says extra cleaning in place and workers are social distancing

Two people fined after B.C. police spot online ads re-selling 5,000 surgical, N95 masks

Police confiscated the masks, being sold at inflated prices, and now working with Fraser Health

Unclear if Cowichan couple refusing to self-isolate will face penalty

No fines or charges have been laid to date, including Cowichan couple who won’t self isolate

POLL: Will you be able to make your rent or mortgage payment this month?

With the COVID-19 delivering a devastating blow to the global economy, and… Continue reading

COVID-19: Postponed surgeries will be done, B.C. health minister says

Contract with private surgical clinic to help clear backlog

Most Read