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Finance Minister Bill Morneau says Ottawa is on track to run an $18.4-billion deficit next year, even before adding the billions in new spending promised by the Liberals during the election campaign.
Mr. Morneau also announced that the budget will be released on Tuesday, March 22.
The Liberals campaigned on a plan to run deficits of $10-billion a year to fund new spending, which means that, roughly estimated, delivering on those promises would push the size of the projected deficit to nearly $30-billion.
In an unusual move, Mr. Morneau announced an update to the fiscal update his department released in November in order to highlight the impact of the fact that forecasters have since reduced their expectations for economic growth.
Finance Canada bases its budget numbers on an average forecast from private sector economists. That average is now significantly lower for 2015 and 2016, though largely unchanged for 2017.
The November fiscal update assumed nominal growth, which includes inflation, would reach 4.2 per cent in 2016. That has since been reduced to 2.4 per cent. The average nominal GDP forecast for 2017 of 4.6 per cent growth has not changed.
In a speech to a town hall in Ottawa, Mr. Morneau said the recent decline in growth forecasts reinforces the government’s view that it needs to increase spending in areas like infrastructure to give the economy a boost and prepare it for the longer term.
He also said that the top 1 per cent and top 0.1 per cent have benefited much more than the middle class over the past four decades.
The next budget will be released on March 22, 2016 - it's the first major step in our plan to grow the economy and support the middle class.— Bill Morneau (@Bill_Morneau) February 22, 2016
“Income inequality is an even bigger challenge in times of economic stress, especially for blue collar workers who tend to be the first to feel the effects of economic downturns,” he said, according to a copy of his prepared remarks.
Mr. Morneau said this will come as no surprise to Canadians in Alberta, Saskatchewan or Newfoundland and Labrador, where the economy has slowed considerably due to the drop in commodity prices, especially oil.
“There is no question that times are tough right now for many Canadians. A less ambitious government might see these conditions as a reason to hide, to make cuts or to be overly cautious. But 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.”
The government’s deficit forecast includes a doubling of the commonly-used cushion for risk. Rather than including $3-billion a year for unforeseen events or forecasting errors, the latest update raises that adjustment to $6-billion a year in both 2016-17 and 2017-18.
That means that without the adjustment for risk, the projected deficit would be $12.4-billion for next year, rather than the $18.4-billion announced Monday. The government argues this adjustment is prudent in light of the high level of uncertainty related to current economic forecasts.
Monday’s update to the update lowers the 2016 forecast for North American crude prices to $40 (U.S.) from $54.
The latest numbers also include government decisions made by the Liberals since forming government, including income tax changes, support for Syrian refugees and the reversal of sick leave changes in the public service.
The government has also booked less than $300-million in the current fiscal year for Alberta under a fiscal stabilization program.