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Finance Minister Bill Morneau makes his way to the House of Commons to table the federal budget in Ottawa, Wednesday, March 22, 2017.Adrian Wyld/The Canadian Press

In two budgets, the Trudeau Liberal government has utterly changed the course of Canadian economic policy. And the impact goes much deeper than the red ink it has spilled on the bottom line – although the bottom line may well limit how far this government can take this new economic vision.

Yes, Wednesday's budget moves Canada a bit further away from fiscal balance, which the previous Harper government considered its budgetary holy grail. The deficit for the upcoming fiscal year, 2017-2018, is now budgeted at $28.5-billion, up from an estimated $23-billion in the fiscal year ending March 31, and from the government's estimate of $27.8-billion in its interim economic update last fall.

More significantly, the government now sees a much flatter trajectory for whittling away at that deficit over the next several years: Its new five-year projections peg the deficit at a still-substantial $18.8-billion in 2021-2022, well above the $14.6-billion it envisioned last fall.

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A government elected less than a year and a half ago on a promise of short-term higher deficits – and a return to balance before the next election – is no longer even talking about balancing the books. (Indeed, Finance Minister Bill Morneau did a verbal dance around that question a couple of times in his budget press conference Wednesday.) Its focus now is on keeping its spending anchored to a stable debt-to-GDP ratio – not exactly music to the ears of fiscal purists.

To dwell on the fading prospects of a budget balance is tempting, but it also misses the larger point. This isn't just a question of a more lax attitude toward spending and deficits. This Liberal budget, built as it is on the foundations established by the last one, entrenches into federal policy a very different set of underlying economic beliefs than those the Harper Conservatives preached for a decade.

The Conservatives' approach of tax cuts and the pursuit of balanced budgets was grounded in a belief in smaller government as an economic catalyst, creating a more competitive private sector that would have the financial resources and incentives to invest and grow. Yet that approach didn't bear some of the most critical expected fruit: Productivity growth and business investment, the building blocks for sustainable economic growth, have been a chronic disappointment.

The Liberals' approach turns this belief system on its ear: Nurture those building blocks in order to fuel the growth that will assure a healthy private sector and keep the government coffers well-fed. Everything about this budget underlines that set of beliefs. While carrying on the previous budget's heavy commitment to infrastructure investment, the government has ladled heavy servings of technology innovation and skills upgrades on top. It refines the government's pursuit of a high-skilled immigrant work force to feed Canada's emerging needs in key growth areas. It commits increased funding for child care that should encourage more women to enter the work force, a key to helping fill the growth-stifling labour gaps that are expected to emerge as Canada's aging population further slows labour growth.

"Our approach is to assure that we make the kind of investments that allow us to grow our economy, so that we can have continuing improvement in our fiscal situation over time," Mr. Morneau said.

But at the same time, it's hard not to notice that this second budget is decidedly tame in its net new spending commitments; they were kept roughly in line with mildly improved revenue projections, reflecting a modest upgrade to next year's economic growth outlook. It appears the Liberals are living within their means – at least as they have redefined them.

If it is now committed to keeping its deficits confined in a safe box, this may become an increasingly difficult line for the government to tread as it gets later in its mandate. The latest forecasts of the country's top private-sector economists – which, by convention, the government relies on as the basis for its own budget projections – show a slowing of economic growth once we get beyond the next two years. Inconveniently, this headwind will hit the budgetary bottom line right around the time the government is seeking re-election.

Already facing significantly higher deficits than it pledged in the last election – or even that it was talking about a few months ago – a Liberal party approaching an election will find little room to manoeuvre in an election-year budget. It may have one more year, at the most, to pursue its greater aspirations for remaking economic policy before it is reined in by political realities.

The Liberals' one hope is that before it faces this reckoning, its policy makeover starts to deliver on its promise – namely, increased economic growth – toward the end of its election mandate. That would not only give it a good-news economic story to peddle to the electorate, but will give it a bit of budgetary wiggle room.

But these kinds of productivity overhauls generally take longer than one election cycle to take hold; as Mr. Morneau keeps saying, these are long-term investments. If the Liberals want to push further with their economic agenda, then they will likely have to shuffle around existing spending, rather than adding further to it.

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