Finance Minister Bill Morneau will meet with private-sector economists later this month for a final check-in on the state of the Canadian economy before he delivers the Liberal government’s pre-election budget.
Some bank chief economists say they will be urging Mr. Morneau to rein in spending and reduce the deficit, but doubt that message will resonate with a government heading to the polls in October.
“The upcoming budget’s going to be more of a political document than a policy document,” RBC chief economist Craig Wright said. “It would be nice to see some spending restraint, but it’s probably not likely in an election budget.”
The Globe and Mail confirmed the minister will meet with economists in Toronto on Friday, Feb. 22, which provides a strong hint as to when the budget will be released.
The closed-door chat with economists typically happens a few weeks before the budget. That suggests the week of March 18 is the likely time it will be unveiled, given that’s the only week in March the House of Commons is scheduled to sit. No date has been announced however, so other options remain.
The economic landscape has not changed dramatically from when Mr. Morneau last provided an update on federal finances on Nov. 21. Tensions between China and the United States – Canada’s two largest trading partners – are the main risk to the global economy in 2019. The uncertainty over Canada’s trading relationship with the United States has improved significantly since last year’s budget, but the U.S. Congress has yet to pass the new North American trade deal that was signed in November.
At the time of Mr. Morneau’s fall update, private-sector economists projected gross domestic product growth of 2 per cent in 2019 and 1.6 per cent in 2020. The most recent average forecast – as compiled by Consensus Economics – found expectations have declined to 1.8-per-cent growth in 2019, while the outlook for 2020 has improved to 2 per cent.
The Conservative Party has repeatedly criticized Prime Minister Justin Trudeau for breaking the Liberal Party’s campaign promise to balance the books by 2019 and intends to make the deficit an election issue. Mr. Trudeau’s response has been to say that the new spending has benefited Canadians and he has challenged the Conservatives to outline what they would cut if they formed government.
The Finance Minister has said skills training will be a focus of his next budget. He has also mused about taking some form of action to address “affordable housing for millennials,” in reference to the generation of people who are currently in their 20s or early 30s.
At an event last month in Aurora, Ont., Mr. Morneau said “there’s multiple things that we’re looking at” that could help. The minister has not put forward any specific proposals, but housing-industry groups have called on Ottawa to ease some of the tighter mortgage rules that were adopted in recent years in an effort to cool housing markets in Canada’s largest cities.
Some bank economists caution that it may be too soon for Ottawa to ease mortgage rules and that affordability would be better addressed by provincial and municipal governments that can enact policies to promote the supply of new housing.
The fall update projected the deficit for the current fiscal year that ends March 31 would come in at $18.1-billion. The federal government’s monthly spending and revenue figures suggest the federal deficit is on pace to come in smaller than that this year, which would give Mr. Morneau the choice of recording a lower deficit or announcing new spending.
“If the government is satisfied with holding the deficit just below $20-billion, then they do have some fiscal room in the coming year,” BMO chief economist Doug Porter said. "It would be much more prudent to aim for modestly smaller deficits. This would help give fiscal policy much more flexibility both for short- and long-term challenges.”
Scotiabank chief economist Jean-François Perrault, a former senior Finance Department official, said he isn’t overly concerned with the current deficit projections given that the federal debt is low as a percentage of the economy, but he would advise Mr. Morneau to avoid going any further into the red.
Mr. Perrault said balanced budgets put a government in a stronger position to deal with the next recession, but moving too quickly in that direction risks creating a negative shock for the Canadian economy.
“It’s not clear that it’s the right time to do that, even if you wanted to see a lower deficit, because we’re at a point where growth is slowing,” he said.