Deficits in big-spending pre-election budget tee up ballot-box choice

OTTAWA — The final budget of the Trudeau government’s mandate will scatter billions in fresh spending — on everything from pharmacare to retraining workers to first-time home buyers — as the Liberals commit to an electoral fight that pits their deficit-spending vision versus the Conservatives’ balanced-books approach.

Finance Minister Bill Morneau’s budget Tuesday resembled Liberal economic plans that preceded it: the government will exhaust a big windfall, run near-term deficits of about $20 billion and offer no timeline to return to balance.

A stronger economy last year delivered an unexpected revenue bump that will flood an extra $27.8 billion into the federal treasury over the next six years, compared to government predictions in its November economic update.

With seven months to go before the election, Morneau’s plan will spread the cash around. Most of it will be aimed at Canadians’ pocketbooks.

Funding for some of Tuesday’s commitments will only start kicking in after October’s election, giving voters the chance to weigh in on the budget’s contents at the ballot box.

The Liberals’ spending path places them in stark contrast with the Opposition Conservatives, who have called on the government to rein in spending.

“The opposition would like to see us make cuts very rapidly — their idea is balance the budget at any cost,” Morneau told a news conference Tuesday after being asked about his deficits.

“Well, if we had taken that approach in 2015 we would not be where we are today with a better outcome for middle-class Canadians. We’d be in a more difficult spot.”

The measures in Morneau’s fiscal blueprint cover a lot of territory, with a clear focus on individuals — particularly younger adults — as opposed to businesses. The plan includes:

— $4.6 billion over five years to help more Canadians afford and access skills training to keep up with the rapidly evolving workforce

— $4.5 billion over five years to improve living conditions for Indigenous Peoples

— $1.8 billion over four years to enhance the guaranteed income supplement for low-income seniors

— $885 million over five years to make homes more affordable for first-time buyers

— $500 million per year, starting in 2022-23, to help cover the cost of drugs for rare diseases.

The government will make several large, one-time investments for 2018-19, including $2.2 billion worth of new infrastructure funding and $1 billion towards improving energy efficiency.

The budget also pledges to commit up to $3.9 billion in support for supply-managed dairy, egg and poultry farmers affected by recent trade deals with the Asia-Pacific and Europe.

Even with these investments, Ottawa’s fiscal track promises to be a key issue on the campaign trail.

The annual deficit projections in Tuesday’s budget — which reach as high as $19.8 billion — are less than one percentage point of Canada’s gross domestic product, a modest level when compared internationally.

Still, the Liberals will be forced to explain themselves repeatedly until election day.

They came to power in 2015 on a platform that vowed to post annual deficits of no more than $10 billion and to return to balance by 2019.

After the 2015 election, the Trudeau government abandoned the promise, arguing more investments were needed to lift Canada’s long-term economic growth. Instead, Morneau has focused on lowering the net debt-to-GDP ratio — a measure of how burdensome the national debt is — each year even as the actual debt has increased.

In his budget speech Tuesday, Morneau tried to reassure the House of Commons that the shortfalls will start to shrink.

“We’re going to make these investments to grow our economy for the long term — while we bring the books back towards balance,” he said.

The budget’s planning horizon showed the deficit will shrink to $9.8 billion by 2023-24.

The Conservatives have attacked the Liberals for breaking their deficit promise and have demanded Morneau map out a return to balanced books. They’ve accused the government of borrowing today on the backs of future generations.

Leaders in corporate Canada and some economists have also criticized the Liberal deficits, especially since they’ve come during good economic times when many believe governments should be focused on paying off debt.

A big question is what will become of the Liberal spending plan — and how big the shortfalls will grow — when Canada is hit by the next economic downturn.

The economy has had a good run, but experts say it’s debatable how much of Canada’s recent economic performance has come from Liberal policies and how much has been a result of the stronger U.S. and global economies.

— Follow @AndyBlatchford on Twitter

Andy Blatchford, The Canadian Press