The federal government's plan to run a nearly $30-billion deficit this year could make it hard for them to reject future proposals that would push Canada even deeper into debt, according to the vice-president of a right-leaning think-tank.
Craig Alexander of the C.D. Howe Institute says it will be "very easy" for the government to run up a deficit beyond what they predicted in the 2016 budget, which was tabled in the House of Commons on Tuesday. Alexander called it a "platform-based budget" that followed through on most of the federal government's election promises, although it comes with a higher deficit than they'd anticipated during the campaign.
Prime Minister Justin Trudeau had pledged to run a $10-billion annual deficit during the election campaign, but Tuesday's budget projects a cumulative deficit of $113.2 billion over the next five years. Much of the spending is planned for infrastructure investments, a new child-care benefit and improved funding for Canada's First Nations, among other priorities.
"What we saw was, basically the Liberals delivering on their election promises, but unfortunately, there isn't the money to pay for it," Alexander told CTV's Canada AM on Wednesday.
Alexander pointed out that several factors could easily lead to an even deeper deficit, such as an economic slowdown, a shortfall in tax revenues or a hike in interest rates. He also suggested that it's harder for a government to reject new spending proposals once it's accepted a deficit, because it hasn't made a public commitment to balancing the budget. The government has not provided a timeline for returning to a balanced budget.
"It gets very hard to say no to people," Alexander said. "When somebody comes with a new proposal, you have to say, 'Well, I'm willing to invest in that other project, but not yours.'"
Finance Minister Bill Morneau defended the projected $29.4-billion deficit for this year, saying that Canadians elected his party on its platform to inject money into the economy.
"That's really where we start," Morneau told Canada AM on Wednesday. He said the government has been "transparent" about the cost of its budget, and their goal is to boost the economy in order to help middle-class families and businesses in Canada.
"This budget is about recognizing that we've been in a slow-growth environment for the last decade," Morneau said.
Morneau also responded to accusations from the small business community that it's the "worst budget in years," after the Liberals failed to fulfil a campaign promise to cut taxes on small-businesses. Trudeau had promised to lower the small business tax rate to nine per cent from 11 per cent, but Tuesday's budget only reduced it by 0.5 per cent.
Morneau said the budget is meant to get the economy growing, and suggested that economic growth will create more customers for all business in Canada. "That's going to help their businesses as well," he said.
Alexander said the government's willingness to upset the small business community shows they have the capacity to say ‘No,’ despite political pressure.
He added that the government's finances are "in relatively good shape," so Canada can afford a period of spending. The danger, he says, will be if the government start saying "yes" to too many new proposals.
"It's very easy for (deficits) to run up beyond what you predicted," he said.
