NewsAlert: Federal deficit now $18.4 billion

Minister of Finance Bill Morneau participates in a town hall meeting ahead of pre-budget consultations in Ottawa, Monday February 22, 2016.

Morneau cut his 2016 GDP growth forecast to 1.4 percent, from 2 percent in November, the last time the government updated its projections.

The Liberals have been forced to blow through their promised $10-billion deficit ceiling. These are expected to include several billion dollars in infrastructure spending, which could easily push the deficit over $20 billion.

The council, which Morneau said will be selected shortly, will provide him with policy advice “to help create the long-term conditions for economic growth with a focus on the middle class”.

Private-sector economists are now predicting an average crude price of US$40 a barrel in 2016, down from US$54 in the fall economic update.

“In times of economic volatility, the right approach is to invest in the economy”, Morneau said when asked if his budget would add to campaign pledges.

“I find this reckless, irresponsible and it’s entirely the result of the finance minister and the prime minister not being able to make the decisions that they need to make today to respect taxpayers’ money”, Ambrose said on Parliament Hill. If introduced, the party’s platform projects this program would have a net new cost of $1.8 billion next year once it replaces the plan introduced by its Conservative predecessors.

BMO Capital Markets said in a note the Liberals now look set to run a deficit of around C$30 billion in 2016-17, assuming additional stimulus spending of roughly C$10 billion in the upcoming budget.

Morneau recently heard downgraded forecasts from private-sector economists whose projections are averaged to create a fiscal baseline for Ottawa’s budget, expected late next month.

The fiscal downgrades for the next two years are largely due to lower oil prices and weaker-than-expected growth in the United States and world economies, Finance said.

The Finance Department said the fiscal projections are also about $2 billion lower per year because recent developments have been accounted for, including the Liberals’ changes to the income-tax brackets and Canada’s operations in the Middle East.

However, after crunching the numbers from the economists, Finance officials knocked about another $6 billion per year from the bottom lines in 2016-17 and 2017-18.

“There’s no question the times are tough right now for many Canadians across the country, and in that situation a less-ambitious government might see these conditions as a reason to hide, to make cuts or to be overly cautious”, Morneau said.

The Liberals now say they will keep Canada’s debt to GDP on a downward trajectory, though Monday’s numbers suggest they may only narrowly meet that promise in the next two years. “Our government believes strongly that the economic downturn makes our plan to grow the economy even more relevant than it was a few short months ago”.

Morneau also announced Monday that Dominic Barton, a director from the consulting firm McKinsey & Company, will lead a new advisory council on economic growth.

There had been speculation that the budget would land early in the spring, with the week of March 21 widely predicted to be the most likely contender. The government has also sent signals that it is considering an increased cash injection.

Although the Conservatives say now is not the time for deficits, they inherited a surplus from the Liberals in 2006 and ran deficits from 2008-09 until last year’s balanced budget.