Liberals use a third of their economic windfall for new tax measures, spending

“As we invest directly in Canadians and their families, we have an immediate impact on the economy,” Morneau said in his speech in the House of Commons. “Our strong fiscal position allows us to do what other countries would like to do, but can’t afford to do.”

The remaining funds will be aimed at reducing annual deficits, which are projected to shrink each year starting in 2018-19.

But without a plan to eliminate annual shortfalls across the projection horizon, the governing Liberals will press ahead with their deficit-spending approach. Their focus will stay fixed on lowering the debt-to-GDP ratio, a measure of Ottawa’s debt burden.

Morneau argued that the government’s child-benefit program has, in fact, helped lift the economy.

“Now, with a little more wind in our sails, we’re doubling down on a plan with proven results,” he said in his speech.

The government will introduce an enhancement to child-benefit payments so they start rising with the cost of living two years earlier than initially promised — at a total cost to government of $5.6 billion over five years. The indexation will take effect next July.

He will also bolster the working income tax benefit, a refundable credit aimed at providing relief for low-income Canadians who have jobs and encouraging those who don’t to join the workforce. The measure is projected to lower government revenues by $2.1 billion over five years, starting in 2018.

The government will provide more details on the design of the enhancement in next year’s budget.

As it hits the mid-mandate mark, the Liberal government is in far better fiscal shape than it was in its March budget.

The economy has seen an average annualized growth rate of about 3.7 per cent over the last four quarters, which more than doubles the Bank of Canada’s estimate for that period. The government’s survey of private-sector economists predicts growth of 3.1 per cent this year, 2.1 per cent next year and 1.6 per cent in 2019.

The government is now expecting to run a shortfall of $18.4 billion in 2017-18, compared with a projection of $25.5 billion outlined in the budget. For 2018-19, Ottawa is predicting a $15.6-billion deficit, compared with the $24.4-billion projection last spring.

These projections do not include the government’s adjustments for risk, which was set at $1.5 billion for 2017-18 and $3 billion for each of the subsequent years in the outlook.

The opposition Conservatives attacked the government Tuesday for failing to fulfil its 2015 election vows to run a deficit of no more than $10 billion in 2017-18 and to return to balance next year.

“Remember that?” Tory MP Pierre Poilievre said in reference to the deficit promise for this year. “Today, we learn that the deficit is double that … and there are no balanced budgets projected by this government — ever.”

The Liberals are surely hoping that the good economic news in the update will take some of the public scrutiny off their embattled finance minister.

Morneau has been preoccupied of late with fending off conflict-of-interest accusations largely related to his multimillion-dollar corporate holdings.

In hopes of quieting accusations linked to how he handled his personal fortune upon entering public office in 2015, Morneau pledged last week to sell at least $21 million worth of stock and place his other assets in a blind trust.

Opposition MPs have also called on the former businessman to disclose whether he recused himself from making decisions on pension legislation that they allege will likely benefit his former human resources company, Morneau Shepell.

It’s not the only controversy Morneau has wrestled with in recent weeks.

He was busy last week promoting the government’s efforts to address widespread complaints about the controversial package of proposed small-business tax reforms. Morneau was forced to tweak and even back off some of the proposals after an angry backlash from doctors, farmers, tax experts and even Liberal backbench MPs.

The update accounted for some of these adjustments to its tax proposals, including the fiscal impact of its promised tax cuts for small businesses.

However, the framework has yet to account for additional revenues the government is expected to rake in once it moves forward with its proposal to limit the use of passive income investments within private corporations. The reform could eventually provide billions in extra revenue for Ottawa.

On the government’s new policies Tuesday, Scotiabank chief economist Jean-Francois Perrault said the spending was “pretty reasonable.”

“The fear going into this is that they would spend much more than they’ve ended up doing,” Perrault said.

He did note that the relief in the update will put the government on a different path than the Bank of Canada, which has been trying to cool the economy with interest-rate increases. But he said the additional money Ottawa was putting in the economy was small enough that it wouldn’t register on the bank’s “Richter Scale of stimulus measures.”

Anita Khanna, national co-ordinator of the anti-poverty group Campaign 2000, said it’s significant the government has “recognized that putting money into people’s pockets not only boosts their life chances and those of their children, but also boosts the economy.”

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Andy Blatchford, The Canadian Press

by Canadian Press

Liberals use a third of their economic windfall for new tax measures, spending

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