Liberals back away from vow to keep annual deficits under $10B

OTTAWA -- The finance minister is highlighting three economic priorities for the new government -- but the Liberal campaign vow to cap annual deficits at $10 billion is apparently no longer among them.

Bill Morneau avoided a question Wednesday when asked about the party's promise to keep annual shortfalls under the ceiling.

Instead, he told reporters that the government will focus on its election pledges to invest in infrastructure, lower the federal debt-to-GDP ratio and balance the books in the fourth year of their mandate.

"We're going to continue to talk about those three aspects of our promises because we do want to focus on growth," Morneau said following a caucus meeting in Ottawa.

"Those were the three things we talked about in the campaign -- those are the three things we're going to continue to talk about."

The Liberals won the October election on a platform that pledged to spend billions on infrastructure projects, which the party argues will revive the lethargic economy and create jobs.

"With the Liberal plan, the federal government will have a modest short-term deficit of less than $10 billion in each of the next two fiscal years," the Liberal platform says.

"After the next two fiscal years, the deficit will decline and our investment plan will return Canada to a balanced budget in 2019-20."

During the campaign, Liberal Leader Justin Trudeau vowed to respect the $10-billion upper limit for deficits in 2016-17 and 2017-18 unless the economic situation got "radically worse."

Morneau also sidestepped a reporter's question Wednesday asking whether the current low-growth environment qualified as a major economic shock.

The finance minister's remarks came a day after the parliamentary budget office warned Ottawa was on track to run medium-term shortfalls billions of dollars higher than the Liberal forecasts.

The report predicted the government would run annual deficits higher than the Liberals' predictions by $2.3 billion in 2017-18, $3.6 billion in 2018-19 and $6.3 billion in 2019-20.

The budget office said the Liberals had a "more optimistic outlook" for expected revenues from personal and corporate income taxes as well as the GST.

For 2016-17, it projected the shortfall will be $900 million smaller than Ottawa's forecast.

Asked about the budget office findings Wednesday, Morneau called them "helpful."

"For us to have different analyses is always useful," he said.

Morneau recently released a fiscal update that also said the state of the federal books had deteriorated due to declining economic conditions connected to global uncertainty and low commodity prices.

When he presented the update, Morneau said the Liberal government "inherited" the gloomier fiscal situation from its Conservative predecessors, including a $3-billion deficit forecast for the current fiscal year.

In April, the Tories projected a $2.4-billion surplus for 2015-16 -- including the $1 billion set aside for contingencies.

But the government's outlook has been downgraded under Morneau, based in part on the average forecasts of private-sector economists who said conditions had dimmed since the spring.

"We believe that we took a careful look at both the estimates of the independent economists that we use in order to help us with forecasts as well as the conditions that we see impacting our economy," Morneau said.

"I hope that what Canadians read into both our economic and fiscal update, and other reports that come out, is that we have to face an economy that is growing slowly and in order to face that we should make investments that make sense for our economy."