The newly-minted Liberal government has made their first fiscal and economic announcement since taking office and it’s not exactly cheery. Recently appointed Federal Finance Minister Bill Morneau revealed budget surplus claims made by the previous Conservative government were exaggerated, and there are fewer funds available than Canadians were led to believe. This could mean larger deficits and a longer wait to balance the budget – something the Liberal government has promised they will do by the end of their term.
Here’s what Canadians should be aware of.
A Deep Hole
The Liberal government says the previous Conservative government has left billions more in deficits then they revealed during their 2015 budget announcement. In fact, minister Morneau says in 2015 the federal government will record a $3 billion deficit rather than the anticipated $2.4 billion dollar surplus.
Status Quo – For Now
This reveal means no major economic changes are expected to come until 2016. In his comments to the press after the update was revealed Morneau said, “We have also consciously decided not to include any of our campaign commitments made to Canadians. We wanted to show the situation that we have inherited.” Some of those promises include a lower tax bracket for the middle class, and a new tax free benefit for families of young children with a household income of less than $200, 000.
Deeper Deficits Projected
As a result, the new government is revising their economic projections. The finance department update released on Friday states, “…these developments have reduced the projected budgetary balance by about $6.0 billion per year, on average, relative to Budget 2015, resulting in deficits of $3.0 billion in 2015–16 and $3.9 billion in 2016–17 and improving to surpluses of $1.7 billion in 2019–20 and $6.6 billion in 2020–21.”
Are the Cupboards Bare?
Using an emotionally charged analogy, the finance department stated lower tax revenues from a sputtering economy, coupled with a raft of spending measures last year by former Prime Minister Stephen Harper, have left Ottawa’s cupboard completely bare. Might sound a little dramatic, but is evident many Canadians may have only been looking at what was on the counter rather than taking a deeper look into what the Conservatives actually had in their proverbial cupboard. Some may see this as a cautionary tale, others might see it as political spin by the Liberals to make things look worse than they are. But anyone can admit that this means Canadians should be asking more pointed questions to our politicians as to how taxpayer money is being spent.
The major culprit behind the shrinking economy is dropping oil prices – a fact Morneau reiterated. The price drop shocked the economy, forced job cuts, business activity to plummet and dampened the economy. Said Morneau, “The simple truth is that the economy has not performed as well as projected in the last budget.”
During their campaign, the Liberals had planned to post what they called “modest” deficits of $10 billion or under for the first few years of their mandate – but those were based on a budget that the Conservative party revealed and was supposed to be currently in surplus. Instead of 2 per cent growth, the Canadian economy is now forecast to grow at an average of 1.2 per cent in 2015.
It’s not unusual for a newly elected government to point fingers at the old; however, the Liberals will have to show that, despite these new revelations, they’ll keep their campaign promises, especially those made to the middle class.