Federal economic outlook improves, deficit projected at $19.9B in 2017-18
Published Tuesday, October 24, 2017 4:03PM EDT
Last Updated Tuesday, October 24, 2017 6:19PM EDT
OTTAWA – The federal government is using an improved fiscal situation to make increases to some of its tax measures for middle and low income Canadians, but isn’t spending much of the extra cash that has been injected into the federal coffers as the result of a surging economy.
The improved outlook means that Ottawa will increase the Canada Child Benefit, among other federal tax benefits.
The fall economic statement released by Finance Minister Bill Morneau shows a $8.9 billion boost to the federal pocketbook as a result of a strong economy in 2017-18.
As a result, deficits are projected to be lower than originally forecasted: $19.9 billion in 2017-18, down from the 2017 budget forecast of $28.5 billion. The $19.9 billion figure includes a $1.5 billion risk adjustment.
In total, the economic statement includes $14.9 billion in new spending—above what was earmarked in the 2017 budget—over the next five years.
The deficit is set to continue dropping over the next five years, to $12.5 billion in 2022-23, but there is still no budget balance in sight. During the 2015 federal election campaign, Prime Minister Justin Trudeau had pledged to run maximum deficits of $10 billion, until 2019 when he promised to balance the books.
In an interview with Don Martin, host of CTV’s Power Play, Morneau defended the broken promise of returning to balance.
“What we were talking about at that time was a demonstration of fiscal responsibility. We think we’ve found a way to really show that,” he said.
Instead of fulfilling that promise, it appears the federal Liberals are continuing their deficit-spending approach to the economy, prioritizing bringing down the debt-to-GDP rate instead of knocking down the overall debt.
The economy is expected to grow by 3.1 per cent in 2017, which is considerably higher than expected at the start of the year; will reduce to 2.1 per cent in 2018; and drop below two per cent in 2019, to 1.6 per cent.
In the fall update the government also cites that Canada is the fastest-growing economy in the G7, with GDP growing at an average of 3.7 over the last year; and that 450,000 new jobs have created over the last two years.
“Being fiscally responsible means being responsible to Canadians and makes sure they are actually feeling the benefits of growth,” Morneau told reporters Tuesday.
“We’re able to do that by doubling down on what we’ve done for Canadian families: improving the Canada Child Benefit so that people have more money in their pockets and helping those who are struggling to get by,” he said.
Canada child benefit
The federal government is increasing the Canada child benefit by indexing it to inflation as of July 2018, to reflect the rising cost of living. This is expected to cost an additional $5.6 billion over the first five years.
Originally the government planned to index the benefit to inflation in 2020-2021. Deciding to start the indexation two years early is a result of the improved economic situation, the government says.
The Liberals introduced the $23-billion Canada child benefit (CCB) program in 2016. It gives families with children under the age of 18 a monthly payment, the amount of which is tied to income.
The government’s indexation would result in $96 dollars more per child under six and $81 a year for children aged six through 17, in 2018-19.
The CCB currently pays up to $6,400 a year ($533 a month) per child under the age of six, and up to $5,400 per child for those aged six through 17. However, the benefit amount begins to decrease as a family’s net income surpasses $30,000. In 2018-19 the first income threshold is set to rise to $30,450 and the second income threshold is set to rise from $65,000 to $65,975.
Working income tax benefit
The federal government is also giving a boost to its working income tax benefit, a refundable tax credit for low income Canadians in the workforce. The benefit also aims to incentivize those who don’t have a job to join the workforce.
It is being increased by $500 million per year, starting in 2019. Further details on how the government will increase benefits for current recipients and expand who is eligible will come in the 2018 budget.
This benefit is calculated using marital status, which province or territory you live in, income, and if you have an eligible dependant.
Small business tax cut
Already announced, but also included in the fall economic statement, is the lowering of the small business tax rate from 10.5 to 10 per cent in 2018 and to 9 per cent in 2019. The statement also includes some of the Liberals’ other tax reform measures that were the subject of much scrutiny, and eventually watered down over the last week.
Theatre of damage control: Cullen
The opposition, in responding to the government’s latest fiscal outlook, say the entire fiscal update was an attempt to change the channel politically.
The update comes just days after Morneau announced he was divesting his assets amid allegations of conflicts of interest as the result of using a legal loophole to indirectly hold on to his shares in Morneau Shepell when he entered cabinet. This controversy was unfolding alongside the Liberal’s watering down and backing away from some of the contentious tax reforms.
“This is all the theatre of damage control. This update has been rushed forward in order to get the channel off of Morneau’s ethical problems,” said NDP finance critic Nathan Cullen on CTV’s Power Play. He questioned whether the Canada child benefit and working income tax break announcements in the update will be big enough pieces to reset the political agenda.
Conservative Leader Andrew Scheer said the Liberal’s updated fiscal figures were “terrible news,” because the deficit is double what the Liberals promised it would be, and because they have reaffirmed that returning to balance won’t happen this mandate.
“It's terrible news that the deficits are double what was promised. Only a Liberal would ask Canadians to thank him for running deficits only double what he promised,” Scheer told reporters on Tuesday.
“There’s terrible news in the fact that that there is still no plan to return back to balanced budgets,” he said.