The federal deficit won’t be erased until about 2040 based on current trends, according to a report by the federal Finance Department.
The report provides the answer that Prime Minister Justin Trudeau and Finance Minister Bill Morneau repeatedly refused to provide over the past year in spite of a barrage of requests from Conservative MPs.
The Liberal Party campaigned in 2015 on a pledge to run short-term deficits of no more than $10-billion a year before balancing the books in 2019. However actual deficits have come in around $19-billion a year over the past two years and Mr. Morneau’s latest five year fiscal plan did not include a timeline for when the deficit would be erased.
Friday’s report is the department’s annual update of long-term economic and fiscal projections. It is meant to provide Parliament with a general sense of the long-term sustainability of federal finances in the face of changing circumstances, such as the impact of major demographic shifts as the average age of Canadians rises.
The report - which presents figures in five year increments - shows deficits will continue until the 2040-41 fiscal year. That is roughly a five year improvement over last year’s estimate and 15 years sooner than the timeline presented in the 2016 version of the report.
The 2014 version of the report projected decades of consecutive budget surpluses.
The previous Conservative government first released the long term report as part of the 2013 fall fiscal update in response to calls from the Auditor General and the Parliamentary Budget Officer for Ottawa to produce longer-term estimates.
However the Liberal government has repeatedly opted not to include the report as part of the fall update. Instead, for three years in a row, the report has been released just before Christmas at a time when public attention on federal politics is low. Parliament is currently on recess until January 28.
The report projects what would happen to federal finances through to 2055 if current spending and taxation trends remained the same.
The Liberal government has said that instead of focusing on erasing the deficit, its main goal is to ensure that the size of the federal debt is on the decline when measured as a share of GDP. When the economy grows faster than the deficit, it is possible for the debt-to-GDP ratio to improve even as annual deficits ad to the size of the federal debt in dollar terms. Critics of that policy warn however that the government can quickly fall behind target during periods of weak economic growth.
In a year-end interview with The Canadian Press, Mr. Trudeau said Canadians should not be worried about deficits because the federal government enjoys a strong rating from international bond-rating agencies.
He also suggested that the 2019 Liberal election platform might continue to use the debt-to-GDP ratio as the main fiscal target.
"I think the debt as a share of GDP is a very handy and important way of measuring how sustainable a fiscal plan is," he said.
Conservative Finance Critic Pierre Poilievre said Mr. Trudeau has “shattered” his promise to balance the books by 2019 and the new focus on the debt-to-GDP ratio encourages poor financial decisions.
“By nature, if you’re just tracking the debt-to-GDP ratio, you could spend like crazy in the good times, but then Liberals would have to cut with a chainsaw in the bad times,” he said.
The Parliamentary Budget Officer’s latest long-term assessment of federal finances uses the debt-to-GDP ratio as a key guide in concluding that federal finances are in fact sustainable over the long term. However the PBO has warned that by the same measure, provincial finances are not.
Friday’s report said the federal debt will be virtually erased in the 2050s, as the debt-to-GDP ratio will drop from 28.5 per cent in 2023-24 to 2.4 per cent in 2055-56. That projection assumes that forecasted surpluses in the 2040s and 2050s are devoted entirely toward reducing the debt in real terms, bringing it down from a peak of $959.8-billion in 2040-41 to $206.9-billion in 2055-56.
Earlier this month, the Moody’s bond rating agency downgraded Ontario’s credit rating from Aa2 to Aa3 due to the province’s high debt and deficits.
Also on Friday, the Finance Department also released its latest monthly fiscal monitor report on in-year trends for federal spending and revenue.
The report said Ottawa ran a $1.1-billion deficit in October, but that Ottawa remains in a slight surplus position so far over the first seven months of the fiscal year that began April 1. As of October, the surplus so far this year is $92-million, compared to a $6.6-billion deficit over the same seven month period the previous year.
Even though finances are in a small surplus so far this year, Mr. Morneau’s November fall economic update said the government expects the fiscal year to end with an $18.1-billion deficit, rising to $19.6-billion in 2019-20 before gradually declining in size over the following four years.