Liberals deepen federal deficit in response to Trump tax cuts
New business tax write-offs are intended to help Canadian businesses compete with U.S. rivals
The Liberal government is spending billions to help corporate Canada compete with the U.S. and to prop up struggling news organizations — showing a willingness to go deeper into deficit with no timeline for returning to a balanced budget.
In his fall fiscal update, delivered this afternoon, Finance Minister Bill Morneau touted Canada's strong economic performance but warned that global uncertainty, unpredictable oil prices, lingering trade disputes and deep tax cuts brought in by U.S. President Donald Trump are all posing serious challenges.
The fall economic statement delivers $17.6 billion in new spending over six years — about $16.5 billion of it in foregone revenue to boost Canadian business productivity.
We're deficit-financing the corporate sector.- Former parliamentary budget officer Kevin Page
Those measures include a new tax write-off scheme allowing manufacturers to immediately recoup the full cost of machinery and equipment, as well an immediate write-off for clean energy equipment.
There's also a new accelerated capital cost allowance to encourage businesses of all sizes in all sectors to invest in assets that can drive long-term growth by allowing them to deduct the costs of those investments sooner.
"We could have ignored the concerns of business leaders, decided not to make the investments and the changes that are part of the fall economic statement, and we would have had a lower deficit as a result," Morneau said.
"To do so would be neither a rational response nor a responsible one."
No balanced budget in sight
The Liberals, who promised during the 2015 election campaign to cap deficits at $10 billion and balance the books by 2019, are now forecasting a $19 billion shortfall this fiscal year.
That deficit is projected to decrease to about $12 billion by 2022-23. Without the new spending, that deficit figure could have dropped to less than $5 billion.
The Opposition Conservatives have been pressing the government to provide a timeline for eliminating the deficit, but this update provides no such target.
Kevin Page, president of the Institute of Fiscal Studies and Democracy at the University of Ottawa and a former federal parliamentary budget officer, said many might question whether it's fiscally responsible for the government to respond to the Trump administration's stimulus efforts with deficit financing. Washington has slashed corporate tax rates from 35 per cent to 21 per cent.
"We're deficit-financing the corporate sector," Page said.
The fiscal update also invests $595 million over five years to help non-profit and for-profit news organizations through new charitable tax incentives and refundable and non-refundable tax credits.
Morneau said the investments are meant to protect the "vital role" that independent news media play in Canadian democracy.
Conservative finance critic Pierre Polievre took aim at the government's decision to carry long-term deficits.
"Not only did they break their promise, not only will they fail to balance the budget, as they said, but they now admit that under their plan the budget will never be balanced," he said.
"There is no time period into the future where they are even committing to a situation where the debt stops growing."
Media supports 'very dangerous'
As for the government's plan to bolster news media outlets, Polievre said public tax dollars should not be used in an election year to set up a panel who will determine "which media survive and which don't."
"We think the media should be independent from the government," he said. "We should not have a situation where the government picks a panel who then gets to decide who reports the news. That's very dangerous."
NDP Leader Jagmeet Singh also stressed the importance of preserving media independence, but said government support is "absolutely important" to the goal of maintaining robust journalism.
"The approach of providing supports is something necessary," he said, adding the government could help by spending advertising dollars in local newspapers instead of on giants like Google and Facebook.
Avalanche safety, protecting fish stocks
On the announcement of business tax breaks, Singh said the government should have delivered targeted, specific measures aimed at creating and protecting jobs rather than a "blanket approach" that will only benefit corporations.
Other new spending initiatives in the fiscal update include:
- $25 million for a one-time endowment to Avalanche Canada to develop a national program to research and promote avalanche safety. Prime Minister Justin Trudeau was an advocate for avalanche safety before he became Liberal leader. His brother Michel died in an avalanche in British Columbia in 1998.
- $107 million over five years to promote sustainable salmon and other fish stocks.
- $63 million to improve the Nutrition North program.
The federal debt, projected to hit $688 billion this fiscal year, is expected to climb to $765 billion by 2023-2024. By that time, the annual cost of servicing the debt will be more than $34 billion a year.
But the size of the debt compared to GDP — the ratio the Liberals tend to cite as a measure of the federal government's fiscal health — will continue to decline.
- A previous version of this story misquoted Finance Minister Bill Morneau as having said, "To do so would be neither a national response nor a responsible one." In fact, he said, "To do so would be neither a rational response nor a responsible one."Nov 21, 2018 8:43 PM ET