Lower deficits, better growth mean breaks for families, federal government says

The government will use the bigger-than-expected boost to its bottom line to give families more breaks, not chart a path to a balanced budget.

Thestar.com
Oct. 24, 2017
By Tonda Maccharles

The federal Liberal government is "doubling down" on spending to combat poverty rather than putting the books in the black any time soon.

Unveiling a fall economic update that showed an economy going gangbusters at more than 3 per cent, and lower deficits as a result, Finance Minister Bill Morneau said the government will use the bigger-than-expected boost to its bottom line to give families more breaks, not to chart a path to a balanced budget.

"It rises all boats," Morneau told reporters.

In the Commons, he said: "We're doubling down on that strategy because it's working."

Morneau now projects a $19.9-billion deficit for 2017-18 that will clock in at $8.6 billion less than was projected just last March.

"Not only is our plan working, it's working better than expected," he said.

Kevin Page, a former parliamentary budget officer now at the University of Ottawa, said in an interview that Morneau is "in a sweet zone" as finance minister with the economy outpacing all G7 countries. But as a result he said "(Morneau) should have a fiscal plan" to return to balanced budgets.

Page suggested that normal growth for the Canadian economy is more like 1.5 per cent a year, and the current pace "is not sustainable." Even the government's forecast for rising economic output in future years drops to 2.1 per cent next year, and hovers around 1.6 or 1.7 per cent in the years after that. Page said deficit spending now risks becoming structural - and a baked-in ongoing burden for future generations. "You have to deal with it at some point."

Adding new fiscal spending into the mix now puts pressure on the Bank of Canada to raise its interest rates "because people are piling on debt," he said.

Political critics like Conservative Leader Andrew Scheer pounced on Morneau's plan to continue to spend more than the government takes in annually, and to borrow money to finance that spending.

"Only a Liberal would ask Canadians to thank him for running deficits that are double what he promised," said Scheer, referring to the Liberals' broken campaign promise to limit deficits to $10 billion a year, before returning to a balanced budget by 2019.

The NDP's parliamentary leader, Guy Caron, said the update amounts to little more than a Liberal attempt to "change the channel" from the controversies surrounding the finance minister and the potential conflicts of interest that arise from his personal wealth. He took credit for the announced indexation of the child benefit, claiming the Liberals made the move only because of opposition pressure. And while he welcomed the news that the government would beef up the working income tax break for low-income earners, he bemoaned how it isn't slated to kick in until 2019.

"It's obviously a way for the Liberal government to try to deflect attention from the problems that the minister is actually experiencing right now," Caron said. "To be called an economic update, you actually need to have something new to present."

Dan Kelly, president of the Canadian Federation of Independent Business, tweeted he was pleased the deficit numbers are down from the budget "but now is the time for a plan to balance, not for new spending."

Word of new spending had leaked out the night before Morneau tabled the legislation in the Commons Tuesday.

In announcing it, Morneau said the government will move two years earlier than promised to increase Canada Child Benefit payments for lower- and middle-income Canadians in pace with the cost of living.

It's called indexation and it's a big-ticket item. The increases to the monthly tax-free payments for families with kids under 18 will be pegged to inflation, starting in July 2018, and will cost the government $5.6 billion over five years.

What it means to a single parent of two children who earns $35,000 a year, for example, is an extra $560 in 2019 on top of what would have been an $11,125 annual payment without indexation.

Child poverty activists welcomed the government's plan.

"Indexation of the CCB has been a policy lever that Campaign 2000 has called for since Budget 2016," said Anita Khanna, spokesperson for the coalition of more than 120 national, provincial and local partners dedicated to ending child poverty.

"We are pleased the government has recognized the great benefit of putting money into the pockets of families to not only boost family well-being, but also boost the economy," she said.

Khanna called the move "a very strong down payment" for Ottawa's promised national poverty reduction strategy.

Morneau said Canadians have been using the child benefit payments, an overhauled scheme that the Liberals tied to income levels when they came to power, to increase their personal consumption, which has, in turn, helped Canada's economy.

"They paid off debts, sent the kids to summer camp, bought healthier food, and maybe a few more children's books. Right away, we saw a spike in consumer confidence, and a rise in household spending that underpins our economic growth to this day," he told the Commons in a prepared speech.

There's another sweetener for low-income Canadians.

Morneau is boosting the Working Income Tax Benefit, a refundable tax credit that eases the tax burden on low-income Canadians and encourages those who don't work to join the workforce.

That measure will see Ottawa spend $500 million a year more to improve the financial security of low-income working Canadians ... but not until 2019, an election year.

Khanna of Campaign 2000 praised the Liberal government's plan to increase the WITB, but said she hoped a federal minimum wage and more money for affordable housing, child care and employment insurance will also be part of the government's anti-poverty strategy.

Along with touting a reduction in the deficit forecasted, Morneau said Canada is leading the G7 in economic growth by a wide margin.

Revised projections are that Canada's economic output will grow by 3.1 per cent in 2017, significantly above expectations at the beginning of the year.

And he clung to his decision to measure the success, not by balanced budgets, but by lower debt-to-GDP ratios, saying that that ratio is declining.

It is projected to drop below 31 per cent in 2018-19, more than three years earlier than the budget in March predicted.

"Government is always about balance, and, in our view, the balance that we're seeking is the ability to be fiscally responsible while making investments in the middle class and middle-class families. That's the balance we sought back in 2015."

The fall economic update also reveals, for the first time, the cost of Morneau's decision to fulfil the Liberals' election promise to lower small business tax rates from 10.5 to 9 per cent by 2019, a move announced in the middle of a political firestorm over the minister's personal finances.

It will cost the treasury $2.96 billion over five years.

That is partly offset by an expected rise in what the taxman will collect through controversial changes to stop so-called "income-sprinkling" by incorporated business owners as a way to split income among family members to take advantage of lower tax rates that apply to them. That measure will bring in about $220 million to $245 million a year, when it is implemented fully.

The overall impact, then, says the finance department, will be an annual $2.3-billion hit to the public treasury.

Morneau told the Star he has not completed consultations on measures to limit so-called passive investments by business owners and understands the need for "full transparency."

He said he would aim to provide those numbers in Budget 2018 next spring.

Prime Minister Justin Trudeau left most of Tuesday's spotlight to Morneau to bask in. But he, too, couldn't resist crowing about the Liberals' byelection steal of a Conservative seat in Lac-St-Jean the day before.

"It's a real pleasure to be able to see that in rural Quebec, but across the country Canadians are responding extremely positively to the economic message we put forward and the hard work we've done." Trudeau said "the promise we made to Canadians ... to grow the economy through investing in our communities, is actually delivering."