Trudeau Hits Brakes on Deficits: Canada Budget Takeaways

By Theophilos Argitis and David Scanlan

Bloomberg) -- Canadian Finance Minister Bill Morneau released his 2017-18 budget Wednesday in Ottawa. Documents show the Liberals aren’t going any deeper into the red than they’d forecast in November. There also isn’t much new in terms of infrastructure spending, and contrary to pre-budget speculation, Morneau made no changes to capital gains taxes.

Here are the key takeaways:

DEFICITS: The budget forecasts the 2017-18 deficit to widen to C$28.5 billion in the fiscal year starting April 1, before tapering off to C$18.8 billion in 2021-22. That includeS a C$3 billion annual risk buffer. There’s no target date for a return to balance. On a cumulative basis, and excluding the risk buffer, deficits over the six years including 2016-17 are projected to total C$127.8 billion. That’s down from a November forecast of C$129.5 billion.

BORROWING: Canada will borrow a record C$142 billion in bond markets in the 2017-18 fiscal year, an increase of C$7 billion from the previous year. The debt-to-GDP ratio will peak at 31.6 percent in the coming year, declining modestly by 2021-22.

INFRASTRUCTURE: Budget reiterates pledge to spend C$81.2 billion over 11 years, including C$645 million in 2017-18. There’s no new infrastructure spending and documents show existing funding deferred or delayed, meaning money already allocated isn’t getting out the door.

GDP GROWTH: The economy is forecast to grow 1.9 percent in 2017, slower than the 2.1 percent expected in the November update. Growth accelerates to 2 percent in 2018.

TAX CHANGES: *No changes in capital gains taxes. *Removes public transit tax rebate. *Oil and gas companies no longer allowed to deduct expenses on wells in the year they become successful. *Higher excise taxes on tobacco and alcohol *Imposes sales tax on ride-sharing services like Uber, similar to taxis. *Mark to market accounting applied to gains and losses on derivatives

INNOVATION: The government to invest C$950 million over five years in business “superclusters” to boost growth. The budget also pledges C$400 million over three years for a new venture capital fund.

HOUSING: Statistics Canada to receive C$40 million over five years to set up a database of housing transactions, including levels of foreign ownership of real estate.

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