What to know about Trudeau’s 2016 federal budget

Sunny Ways and small deficits may not be possible as dropping dollar and tanking oil prices set to force government deeper into debt

Thestar.com
March 22, 2016
By Robin Levinson King

Prime Minister Justin Trudeau has promised the country “sunny ways” and small deficits - but in Tuesday’s budget, the two may be mutually exclusive.

Ahead of today’s budget, the Liberals announced “historic” investments in indigenous education, as well more money for infrastructure and childcare.

But with the Canadian dollar and oil prices tanking, the government has signaled that it may have to go deeper into debt in order to afford the programs it promised.

Uncertain economy

During his election campaign, Trudeau repeatedly promised to run three consecutive “modest” deficits before balancing the budget in 2019-2020, and decrease the debt-to-GDP ratio.

But falling oil prices and slow growth in China have taken their toll. Unemployment is on the rise, driven by job losses in oil-dependent provinces like Alberta and Newfoundland.

In February, Finance Minister Bill Morneau scaled up the projected deficit from $9.9 billion to $18.4 billion.

Economists suggest far less sunny numbers: TD Bank says the federal government is on track to run $150 billion in budget deficits over the next five years.

Changes coming

The Liberals have already announced that they will scrap two major Conservative initiatives.

• Employment insurance: The Liberals say they will get rid of the changes to employment insurance introduced by the government of Stephen Harper.

Trudeau has said he would reduce the 910-hour minimum required for EI eligibility to the regional labour market threshold. He also said he would reduce the two-week waiting period for EI to one week. These changes combined are estimated to cost about $1.25 billion a year.

• Retirement age: The Liberals will also keep the retirement age at 65. In 2012, the Harper government said it would raise the age of retirement to 67 in 2023.

“Tweaking the age like that is a very simplistic solution - that won’t work - to a complex problem,” Trudeau told Bloomberg News last week.

• Tax tweaks: The government has already announced a 1.5 per cent tax cut for the middle-income tax bracket. To compensate, it will raise taxes by four points to 33 per cent for those who make more than $200,000.

Expected investments

The government has also promised to increase spending for indigenous people, infrastructure and the middle class.

• Indigenous education: Trudeau says the budget will introduce “historic” investments in indigenous education.

• The government has promised hundreds of millions a year for First Nations children’s education and said it would lift the 2-per-cent cap for services and program spending.

• Infrastructure spending: The government had promised to put an additional $5 billion into infrastructure projects, but exactly how the feds plan to spend this money remains unclear.

Ontario Premier Kathleen Wynne says she is counting on the government backing up transportation projects, while others suggest spending will go to affordable housing.