Canada’s red-hot economy won’t push Finance Minister Bill Morneau off his deficit spending plans, pledging continued cash for infrastructure and other programs to make the nation’s expansion sustainable long-term.
Morneau, speaking Tuesday to an investors' conference in New York, struck an upbeat tone about the resiliency of the country’s economy -- saying it can withstand a higher dollar while expressing optimism over risks such as rising interest rates and U.S. trade talks.
While other panelists argued that deficits should be reined in amid strong growth, Morneau gave no indication he’ll press for a return to balanced budgets as the economy improves. Instead, he hailed the merits of transfers to families, a tax cut to middle-income earners and infrastructure spending.
The government’s main fiscal objective will be to lower the debt-to-output ratio, he said. Deficits coming in less than initially projected justify his administration’s fiscal “prudence,” he added.
Last fiscal year’s deficit came in at about $18 billion -- or more than $11 billion less than initially budgeted -- and this year’s $28.5-billion projected gap is poised to be below target by a similar magnitude. The minister also said Canada’s spending gap is less than 1% of gross domestic product, the lowest among the Group of Seven nations after Germany.
The pickup in economic growth poses a challenge for Prime Minister Justin Trudeau’s Liberals, who have put government spending at the forefront of their economic agenda. While a strong economy that has returned to full capacity is good news, it makes the case for deficits less compelling, since the spending threatens to crowd out other parts of the economy. The growth is already fueling a stronger dollar and higher interest rates.
