Posted: Thu Feb 23, 2017 11:42 am Post subject: Something has to give in Trudeau's budget
Tax, Borrow or Wait? Something’s Got to Give in Trudeau’s Budget
by Theophilos Argitis
February 23, 2017, 5:00 AM EST February 23, 2017, 9:14 AM EST
Deficit-embracing Canadian PM has run out of room to maneuver
Weaker economy, Trump uncertainty complicate government math
Justin Trudeau’s embrace of deficits won him accolades from global investors and policy makers, but not a full year into his first budget and Canada has run out of fiscal runway.
Faced with deficits of almost C$100 billion ($76 billion) in the prime minister’s first mandate -- just over 1 percent of annual gross domestic product -- the tone in Ottawa for months has been one of prudence, penny pinching and scaled-down expectations. Cabinet ministers worry they will get only cents on the dollar for funding requests. Provinces have been frustrated in their requests for health-care transfers.
A possible downgrade of Australia’s credit rating and a recent finance department report showing Canada may not return to balance for decades only stoked worries.
A weaker-than-expected economy and the massive cost of Trudeau’s two marquee initiatives -- enhanced child benefits and infrastructure -- means there is little room for anything else as Finance Minister Bill Morneau puts the finishing touches on a budget expected within weeks.
The likeliest option: keep the focus on delivering infrastructure spending, build out an innovation and competitiveness agenda, and hold off doing much else on the fiscal side until the next election in 2019. Which is a long time to resist political pressure to spend.
Or, if he’s feeling ambitious, Trudeau can test Canadians’ (and investors’) appetite for even higher deficits, tighten spending in lower priority areas to create fiscal room or even raise taxes.
1. What shape are Canada’s finances in?
The economy has unfolded largely as the government expected in its five-year fiscal update last November, when it predicted the deficit peaking at C$27.8 billion this year before narrowing to C$14.6 billion in 2021.
The fiscal update, however, didn’t include any new commitments or take into account any adverse impacts from Donald Trump’s protectionist administration. Adding risk cushions for increased uncertainty -- it isn’t uncommon for the finance department to shave C$3 billion annually from revenue projections as a precaution -- would drive up deficits and curb fiscal leeway further. [....]
The Liberals are in a bind. They’ve promised not to raise taxes, even while shifting the country’s spending profile higher. Provinces aren’t happy with the federal expansionism, since it takes up fiscal room that they both share. Investors and rating agencies are unlikely to tolerate any further easing of fiscal anchors -- currently a promise to reduce the country’s debt-to-GDP ratio. Not to mention public opinion, which in Canada consists of a formidable collective aversion to government borrowing.
t looks like the wheels are falling off. It turns out that the promise of a more dynamic economy is getting further and further away. But at least Justin has unloaded the cost of his nannies onto the public.
Joined: 02 Mar 2009
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Posted: Thu Feb 23, 2017 4:37 pm Post subject:
I haven't really been thinking much about the budget or any though what should be in it
one thing that stands out as I'd be looking for some sort of long term vision that was more than just 1 - 2 years ahead , much like the Ontario liberals here just try and get by a year or so at a time with no long term plan and massive amounts of public debt on the books with no plan as to how they could pay that off
so I'd be looking for some long term vision and a plan to grabble with the debt and spending before it gets as bad as the crazy predictions we saw earlier this year predicted
It will be interesting to see the Liberals wriggle out of their problem. The election of Trump seems to have changed everything. The decade-long period of low-interest rates may be coming to an end. Yellen has implied as much, and Trump's path is uncertain, but didn't the former administration feel that a crisis was what is needed to effect radical change? Trump might welcome such a crisis if it happened soon.
It means that the Liberals are locked into years of deficits, and are caught in a promise not to raise taxes -- all at a time of great insecurity in the bond markets of the world. They may find out they have to roll over our existing debt at much higher rates of interest. And transfer payments start to reflect a new reality.
A lot of tough choices. And some of the older and wiser Liberals are enjoying plush expense accounts in exotic lands. It's up to the Conservatives to blackmail them, electorally, into making the best choices.
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