Canada’s Deficit Soars: Ottawa Projects Billions More in Red Ink
Ottawa – Canada’s federal budget deficit is projected to increase significantly over the next two years, according to a new update released by the Finance Department. Initial projections indicated a deficit of $19.8 billion for the 12-month period ending in March, but this figure has now risen to $26.6 billion for the current fiscal year and $28.1 billion for the following year, before accounting for planned adjustments within the 2020 budget.
The increase primarily stems from changes in the calculation of employee pensions and benefits, alongside the implementation of a tax break set to take effect on January 1st. Despite this widened shortfall, the Liberal government maintains that key measures, such as relative comparisons of the deficit to the nation’s economic size, will continue to improve, albeit potentially at a slower pace than initially anticipated.
A key driver of this revised deficit forecast is the planned expansion of the Canada Child Benefit, which is now projected to increase in value in line with inflation. This, coupled with a rise in the number of children eligible for support, will contribute substantially to the increase in government spending. Furthermore, the government anticipates that increased spending announced earlier in 2019 will ultimately be offset by higher-than-expected personal and corporate income tax revenues.
The Finance Department’s projections also reflect the government’s decision to lift retaliatory tariffs on American steel and aluminum earlier than planned. This action, while intended to alleviate trade tensions, is expected to result in a decline in excise taxes and duties in the current year and subsequent years. Another factor impacting revenue projections is the anticipated slower growth in taxable consumption.
While the opposition Conservative party has criticized the government’s fiscal policy, arguing it could contribute to a “made-in-Canada recession,” the Finance Department projects continued economic growth. The department forecasts growth of 1.7 per cent this year and 1.6 per cent next year. Canada is still expected to be the second-fastest-growing economy among the Group of Seven countries, trailing only the United States.
In addition to these adjustments, the government has pledged to conduct a comprehensive review of spending and taxation policies, which is slated to yield approximately $1.5 billion in savings starting next fiscal year. The Finance Department has already accounted for these savings in its projections. The timing of this review comes amidst growing scrutiny over the government’s spending commitments and its efforts to manage the national debt. The government’s updated fiscal outlook reflects a dynamic economic environment and requires careful monitoring as it unfolds.
