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Finance Minister Bill Morneau is to outline key themes of his budget on Monday, including a new accounting of how hard federal finances have been hit by the slowing Canadian economy.

Adrian Wyld/The Canadian Press

Finance Minister Bill Morneau is to outline key themes of his budget on Monday, including a new accounting of how hard federal finances have been hit by the slowing Canadian economy.

Mr. Morneau, who met last week with private-sector economists, will outline the fiscal landscape with which he has to work before he adds billions in promised new spending.

His November update assumed the economy would grow 2 per cent in 2016 based on an average of private-sector forecasts at the time. However, many forecasts have since been adjusted downward. The Bank of Canada and the OECD now expect growth of 1.4 per cent, which will translate into lower federal revenue.

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Mr. Morneau is expected to update the numbers at a town hall in Ottawa on Monday before an appearance on Tuesday at the House of Commons finance committee. Sources say his Monday speech will focus on the long-term goals of the Liberal spending plans, and that the government will not back away from its pledges to help the middle class in spite of the declining revenue forecasts.

The minister is not expected to put an estimate on the ultimate size of the budget deficit.

Prime Minister Justin Trudeau mused in a private session at the World Economic Forum in Davos, Switzerland, last month that the deficit could hit $25-billion.

During the election campaign, Mr. Trudeau said a Liberal government would run deficits of up to $10-billion a year, but promised to bring the country back to black by 2019-20. The government has backed off those two pledges, but has stood by a promise to shrink the federal debt in relation to the size of economic growth.

National Bank economist Warren Lovely has calculated that, with current expectations of slow economic growth, annual deficits would need to be capped at less than $20-billion to meet that promise. Assuming stronger economic growth would allow larger annual deficits while still reducing the federal debt-to-GDP ratio.

The Trudeau government is grappling with an economy that is growing far more slowly than it was expected to back when the Liberals promised billions in new spending, including $60-billion over 10 years for infrastructure.

Interest groups from across the country who appeared at prebudget Parliamentary hearings this week, and who are in line to receive new federal money, made it clear they expect the new government to deliver on those promises in the budget, which is expected next month.

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The downturn in the economy caused by the steep drop in the price of oil and other commodities is expected to hit federal revenue hard, with some economists forecasting the deficit could be closer to $30-billion.

In addition to interest groups waiting for promised funds, Ottawa is facing new demands from provincial governments, including calls from Quebec to support Bombardier Inc., and Saskatchewan Premier Brad Wall's request for money to clean up oil wells.

CIBC World Markets chief economist Avery Shenfeld said the government's debt-to-GDP promise could still allow for deficits that average $20-billion a year over four years, with larger deficits in the early years.

"Facing huge regional disparities, Mr. Morneau's tougher test will be in determining where to spend the fresh stimulus spending," he said in a note on Friday. "That will force him to dive into the mosh pit in which provinces push and shove to improve their share of the dollars available."

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