Finance Minister Bill Morneau is signalling that his 2017 budget will show a preference for "prudent" new spending over tax cuts as the Liberal government braces for major policy change from Canada's top trading partner.
Mr. Morneau met Friday morning with private-sector economists to hear their expectations for the Canadian economy, including the potential ramifications of new tax and trade measures under discussion by president-elect Donald Trump and the Republican-controlled Congress in Washington.
When asked directly whether the next federal budget will lower corporate tax rates in light of promised business tax cuts south of the border, Mr. Morneau responded by pointing to plans for new spending to promote innovation.
"We already have a very good situation in Canada. We have a corporate tax rate here that is very competitive globally," he said in French. "We want to continue to have a very competitive economy and to that end, we will make investments and take measures to help have a more innovative and productive economy. That's our goal."
The meeting with private-sector economists took place several weeks earlier than last year, which could be a sign that the Liberals are planning to release the budget in February rather than March, as is more common. The meeting with economists normally takes place near the end of the government's prebudget process in order to base the budget numbers on the most up-to-date data.
Finance Canada released a report in late December that showed Ottawa is on track to run deficits until the 2050s but would still manage to shrink the national debt slightly when measured as a percentage of GDP.
Business leaders and opposition MPs expressed alarm at that forecast and urged Mr. Morneau to use the 2017 budget as an opportunity to set a clear timeline for erasing the deficit.
"We will have more to talk about in our budget as we move forward," Mr. Morneau said Friday when asked directly if the budget would set a new timeline for returning to balance.
Mr. Morneau also appeared to suggest that he would leave some fiscal room in the government's plans so that it has the flexibility to respond to policy changes in the United States.
"We will be prudent and we will certainly be making those investments considering the positive impact those investments can make and be careful to assure that we have the capacity to deal with the environment that we find ourselves in," he said in response to a question about how the budget would prepare Canada for changes in Washington.
Friday's discussions took place behind closed doors in Toronto. Economists are expected to limit their public comments on the meeting to the points they themselves made.
CIBC Chief Economist Avery Shenfeld said his advice to Mr. Morneau is that Ottawa should not be concerned with running deficits for a prolonged period of time as long as the debt does not increase as a percentage of GDP.
"To me, a gradually declining or stable debt-to-GDP ratio is a reasonable target for the federal government," he said in an interview after the meeting.
Mr. Shenfeld also said that it will likely take several months before a clear policy direction emerges in Washington.
"There should be a concern in Ottawa about what's happening in the U.S. and how that might blow back on Canada either positively, but more worrisomely, there's some of this that could be quite negative," he said.
"My view is that we just don't know yet what that U.S. policy mix is going to look like," he said. "It might require an adjustment in Canada's thinking if we want to attract, for example, top talent to innovative industries, but it's something we could certainly address in the subsequent budget because none of these U.S. reforms are going to be hitting in 2017."