MNI POLICY: Canada Lifts Budget Deficit to C$26.6B on Pensions

--Finance Minister Morneau Releases Fiscal Update

By Greg Quinn and Anahita Alinejad

     OTTAWA (MNI) - Canadian Finance Minister Bill Morneau raised this year's

budget deficit to $26.6 billion from an earlier projection of C$19.8 billion,

citing higher employee pension costs.

     The shortfall in the fiscal year running to the end of March 2020 was

boosted mostly by a C$4.9 billion increase in pension costs. Future deficits

will also be elevated by the cost of a recent cut to household taxes. The

deficit for the 2020-2021 fiscal year will grow to C$28.1 billion, higher than

the earlier estimate of C$19.7 billion.

     Those estimates are also higher than a recent projection from the

independent budgetary officer, of C$21.1b in fiscal 2019-20 and C$23.3b in

fiscal 2020-21.

     Morneau touted the plan as keeping debt modest relative to GDP at 31%

through next year, and meeting a mandate from Prime Minister Justin Trudeau to

protect the nation's AAA bond rating. Trudeau's Liberals were re-elected in

October with a minority of votes in the House of Commons, though the chance of

being defeated on a confidence vote for a full budget expected by March is slim

because Conservative opposition leader Andrew Scheer quit last week.

     Morneau was also tasked by Trudeau last week with saving fiscal firepower

in case of a downturn, and today's fiscal update has few major new spending

plans beyond the pension costs that are driven by accounting rules. 

     "Even though our economy is doing well, the Government needs to be ready to

respond to whatever challenges might arise," said a government budget document

Morneau released on Monday from Ottawa.

     The bigger deficits may give a hand to the BOC, which has held the G7's

highest interest rate this year and says the economy will be tested by damage

from global trade wars. Governor Stephen Poloz has said any fiscal boost will go

into projections for its next rate meeting in January.

     The deficit is projected to narrow to C$22.1 billion in 2021-22. The

deficit for fiscal 2018-19 was C$14 billion, and Morneau won't bring it back to

even that mark until 2024-25. 

--MNI Ottawa Bureau; +1 613-314-9647; email: greg.quinn@marketnews.com

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