OTTAWA -- The federal government is going to go deeper into deficit in the coming years as it tries to encourage Canadian businesses to innovate.
While the economy continues to grow, a changed economic landscape in the United States and new policy measures that the governing Liberals are undertaking are pushing Canada further into the red.
In the 2019-20 fiscal year, the federal deficit is projected to increase by nearly $2 billion to $19.6 billion, up from the $17.8 billion projected for that year prior to today’s fall economic update. Previously, the deficit in 2019-20 was to be less than the 2018-19 deficit of $18.1 billion, though that is no longer the case.
In an attempt to mitigate the impacts of the U.S. corporate tax cuts that are making American businesses more competitive, Finance Minister Bill Morneau has unveiled three new targeted incentives to Canadian companies that meant to boost business confidence and spur competitiveness in the short-term:
The Finance Department says that these new measures will help the overall tax rate on new business investment fall to 13.8 per cent, from 17 per cent, the lowest rate in the G7.
“What the government is doing is basically making it more attractive to invest in capital,”
Chief Economist with Deloitte Canada Craig Alexander told CTV News. He said these new measures will make it cheaper for Canadian businesses to invest, which if successful, could spur productivity and create more economic growth.
As part of the fiscal update -- titled “Investing in Middle Class Jobs” -- the government is proposing a new strategy for export diversification with the goal of boosting international exports by 50 per cent come 2025. This includes chipping away at interprovincial trade barriers, reviewing Canada’s current regulatory framework, and putting an additional $800 million over the next five years to the strategic innovation fund that was announced in the 2017 budget.
There are no specific new measures for Canada’s currently suffering energy sector who are feeling the impact of a dropping price of oil.
Speaking with reporters inside the lockup for the fiscal update, Morneau said the broader competitiveness measures will also benefit the oil sector.
Debt to GDP ratio declining, no path to balance
The debt-to-GDP ratio is shrinking, but not as quickly as once thought. It's currently projected at 30.9 per cent.
The economy is expected to grow by 2.0 per cent in 2018, will stay the same in 2019, and drop below two per cent in 2020, to 1.6 per cent, a year later than the 2018 budget predicted.
“One of the things the government has focused on has been keeping the share of debt in the economy on a declining path. This mini budget keeps the debt-to-GDP ratio on a declining trend but that also limits how much they could actually spend on new initiatives,” Alexander said.
Morneau spoke with confidence about the current economic indicators and said he is not prepared to change the current Liberal approach in the name of chipping away at the deficit with federal cuts.
After the 2019-20 fiscal year, the deficit is projected to drop over the next four years, down to $11.4 billion in 2023-24, with still no budget balance in sight. During the 2015 federal election campaign, Prime Minister Justin Trudeau had pledged to run maximum deficits of $10 billion until 2019, when he promised to balance the books.
The government is still accounting in a $3 billion annual adjustment for risk.
The government is attributing the additional debt to be incurred over the coming years to the cost of dozens of policy actions taken since the 2018 federal budget such as: