- Final figures on track to match budget forecast, Finance says
- Government revenue rises 3.8%, program spending is up 6.6%
Canada’s federal budget swung back into deficit for the fiscal year that ended in March as program spending rose faster than tax revenue.
The deficit, which excludes the impact of a benefit for veterans, was C$1.96 billion ($1.5 billion), according to Finance Department figures published Friday. In its March 22 budget, the governing Liberal Party projected a year-end deficit of C$5.4 billion. Finance Department officials indicated the final numbers, to be released later this year, would be closer to what the government forecast.
The budget figure has become a political hot potato: Prime Minister Justin Trudeau, elected in October, says the outgoing government left him with weaker-than-reported finances, while the Conservatives, who ran an election campaign based on balancing the books, argue they left Trudeau with a healthy surplus.
“The Conservatives have always talked a big game when it comes to balancing the budget but their legacy amounts to them leaving behind tens of billions in additional debt with little more than a slowing economy to show for it,” Daniel Lauzon, spokesman for Finance Minister Bill Morneau, said in an e-mailed statement. “We are making smart, necessary investments that will help the middle class and those working hard to join it.”
In his debut budget, Morneau outlined plans to run a shortfall of C$29.4 billion in the fiscal year that began on April 1, and cumulative deficits of about C$120 billion over six years. The Liberals say that with interest rates at close to zero, fiscal measures are now needed to shake Canada out of its economic torpor.
Lisa Raitt, the Conservative finance critic, says the Liberals are being irresponsible. “Canadians don’t like deficits,” she told reporters Friday in Vancouver. “They have opened the floodgates on spending.”
The figures released Friday show revenue grew 3.8 percent to C$290 billion on the year. Program spending rose 6.6 percent to C$266 billion. Public debt charges were lower, declining 4.1 percent to C$25.5 billion.
In March, the final month of the fiscal year, revenue fell 17 percent to C$24.1 billion, compared with a year earlier, while program spending increased 4.4 percent to C$31.5 billion. That resulted in a deficit for the month of C$9.44 billion.
The bond market doesn’t see a problem with Canada’s fiscal track. Federal debt carries top credit ratings and yields on 30-year bonds that are most vulnerable to increased deficits fell to record lows in February. The yield on those securities was 1.98 percent Friday, meaning investors are accepting returns that don’t cover the 2 percent rate of inflation targeted by the Bank of Canada.
Bank of Canada Governor Stephen Poloz said earlier this year he moved away from a bias to cut interest rates further -- after two cuts last year -- because of the government’s move toward fiscal stimulus. Poloz has also said that with interest rates so low, measures such as tax cuts and infrastructure projects can do more to boost Canada’s shaky economic growth.
Friday figures won’t be the last word. The finance department last September revised the figure for the 2014-15 fiscal year to a C$1.9 billion surplus from the initial budget estimate of a C$2 billion deficit.
“These results don’t include the $3.7-billion fiscal impact of the Government’s initiative to enhance veterans’ benefits,” the finance department’s Fiscal Monitor report said. “Taking year-end adjustments into account, results to date are broadly in line with a small deficit in 2015–16, as projected in Budget 2016.”