MNI:Canada FY19-20 Budget Gap C$19.8B W/Pre-Election Elements

By Courtney Tower

     OTTAWA (MNI) - Higher than expected revenues notably reduced the federal

government's deficit for the fiscal year just ending, but its projections show

that the deficit rises again for the coming fiscal year.

     Finance Minister Bill Morneau brought down a 2019-2020 budget in Parliament

Tuesday that projects real GDP growth of 1.9% for calendar year 2018, 1.8% for

2019 and 1.6% and 1.7% for the two subsequent years.

     The GDP projections are much in line with recent Bank of Canada estimates,

as are the CPI inflation estimates of 1.9% for 2019 and 2.0% for 2020.

     The projected deficit for FY2018-2019 is now C$14.9 billion, down from the

C$18.1 billion gap expected last fall. However, the deficit goes up to C$19.8

billion for the fiscal year starting April 1, before starting a downward trend

from a C$19.7 billion gap for the following year, to C$9.8 billion by 2024.

     Meanwhile, the federal debt-to-GDP ratio also remains on a downward trend,

albeit with very gradual improvements, from 30.8% in the fiscal year just ending

to 30.7% in 2019-2020, reaching 28.6% in FY2023-24.

     The budget bases its predictions in part on assumption of WTI crude oil

prices of US$59/bbl this year and prices ranging from US$60/bbl in 2020 to

US$65/bbl by 2023.

     Morneau's budget provided no further measures, beyond those contained in a

mini-budget last November 21, to make Canada more tax-competitive following the

major tax cuts provided in the United States in 2018. The government then

brought in sharply increased accelerated depreciation allowances, but no

reductions in federal corporate tax rates.

     A signature measure of the new budget is directed at millennial Canadians

afflicted by soaring home prices. For first-time home buyers, Morneau proposed a

shared equity mortgage program with the government-owned Canada Mortgage and

Housing Corporation. CMHC would assume part of the down payment with the buyers,

to be repaid later.

     The budget says that the government will watch the impact of various

regulations on mortgages that have been introduced, including stress tests for

low-down-payment mortgage applicants. It would adjust policies "if economic

conditions warrant, to support access to housing while safeguarding financial

stability."

     A new program would give workers money to help for training for new

workforce skills. Job protection also would be offered for workers who would

leave jobs temporarily to learn new skills.

     Another would take first steps toward a promised national pharmacare

program, creating a new Canadian Drug Agency to bargain on a national basis with

drug companies and to develop a national formulary for prescription drugs.

     Students will have lowered interest rates on loans, municipalities will

have infrastructure funds topped up, new incentives will be introduced for

buying electric or hydrogen fuel cars.

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

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