MNI: Canada Finmin Revises Down FY18-19 Budget Gap to C$18.1B

By Yali N'Diaye

     OTTAWA (MNI) - Canada finance ministry made slight revisions to its federal

budget deficit projections through 2023 Tuesday, keeping both the deficit and

federal debt on a downward trajectory, while indicating no plan to balance the

budget anytime soon.

     Growth assumptions were little changed from the Fall 2017 estimates.

     The C$18.1 billion federal budget deficit expected for FY2018-2019 will

translate into a decline in gross bond issuance to C$115 billion from C$138

billion in FY2017-2018.

     --MINOR DEFICIT REVISIONS

     Minor revisions were made to the budget compared to the Fall Economic

Statement (FES).

     The 2018 Budget assumes real GDP will expand at a pace of 3.0% in 2017, the

same as the 2017 FES, and 2.2% in 2018, which represents a 0.1 percentage point

upward revision. Growth assumptions through 2022 remain the same.

     The federal budget deficit is expected to be C$19.4 billion for

FY2017-2018, compared to C$19.9 billion in the 2017 FES. The gap is expected to

narrow to C$18.1 billion in FY2018-2019, compared to C$18.6 billion projected

last Fall.

     The budget deficit continues to decline to reach C$12.3 billion in

FY2022-2023. On a cumulative basis, the downward revisions to budget deficit

estimates totaled C$1.1 billion between FY2017-2018 and FY2022-2023.

     Over the horizon, the federal debt-to-GDP ratio is projected to decline

from 30.4% in FY2017-2018 to 28.4% in 2023, also little changed from last Fall's

forecasts.

     Although the finance ministry said it was conducting "sound fiscal

management", it gave no indication of a plan to actually balance the budget.

Still, "we are being very responsible," Finance Minister Bill Morneau said

during a press conference.

     --'ROBUST' GROWTH OUTLOOK

     Canadian growth is expected to remain "robust" going forward, with global

growth potentially surprising on the upside and consumer confidence in Canada

that could continue to support domestic spending.

     Indicators point to ongoing investment gains and exports are expected to

rise, supported by a firming global activity.

     "However, uncertainty about the future of the North American Free Trade

Agreement, tighter financial conditions and ongoing market volatility could

weigh on Canadian growth prospects."

     --EASING HOUSING PRESSURE

     Housing market conditions in Toronto and Vancouver areas "have become more

balanced", said the budget report focused on equality and growth, notably gender

equality.

     Going forward, housing demand should be supported by "solid job and income

gains." However, rising interest rates and tighter mortgage finance rules should

temper demand.

     S&P Global recently raised the economic risk for the Canadian banking

system in light of elevated and rising household debt and housing prices.

     However, the budget report did not indicate that the finance ministry

considers the economic risk any higher than it was a year ago despite the rising

interest rate environment.

     Despite elevated household debt and housing prices against the backdrop of

rising interest rates, and the threat of NAFTA and global protectionism, the

Department of Finance estimated that risks to the outlook are "broadly balanced

in the short term."

     --US TAX CUTS

     While the Canadian economy is expected to remain robust, and business

investment is anticipated to rise, the U.S. tax reform pauses a new challenge to

Canadian businesses' competitiveness.

     In fact, the Department of Finance will conduct "detailed analysis of the

U.S. federal tax reforms to assess any potential impacts on Canada."

     Currently, Morneau said, "our tax rates are competitive," and the

government will make sure Canada remains competitive in the long term.

     Morneau did not indicate whether the analysis will lead to actual measures

or not.

--MNI Ottawa Bureau; +1 613 869-0916; email: yali.ndiaye@marketnews.com

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