Beleaguered Liberal government hopes to deliver 'good news' in fall economic update
Finance Minister Bill Morneau expected to announce a boost to child benefit payments
Finance Minister Bill Morneau hasn't had a lot of wins lately, but today's fall economic update could be an opportunity to bask in the glory of a healthy Canadian economy.
With unemployment down and GDP growing, the Liberals could take credit for a sound economy to deflect from the sour mood over the rest of Morneau's track record.
Proposed changes to the small business tax regime went over like a lead balloon with many of the country's proprietors, forcing the Liberal government to take a second look.
Morneau has also faced uncomfortable questions about his own family fortune, admitting Thursday he likely should have put his considerable holdings in a blind trust after he assumed his current ministerial post. He also took a jab at reporters on Friday, saying he doesn't "report to journalists" on matters of personal finance.
Today, Morneau will hand down a document that is expected to be much more rosy than some of the headlines he has faced this year. As CBC News first reported Monday, the minister is expected to announce a boost to payments made to families under the Canada Child Benefit (CCB) program.
Morneau is also expected to bolster the Working Income Tax Benefit, a refundable tax credit aimed at providing tax relief for low-income Canadians who have jobs and encouraging those who don't to join the workforce, the Canadian Press has reported.
Morneau will deliver the update in the House of Commons at 4 p.m. ET. CBCNews.ca will carry his remarks live.
Morneau has already tried to shift the focus from "distractions" like his personal finances. Even when announcing he'd divest shares in Morneau Shepell last Thursday, Morneau reminded Canadians the Liberal government has overseen "a really good couple of years."
The Liberals believe the positive economic signs demonstrate the minister has kept his eye on the ball.
"This is going to be good news," a senior government official said. "The economy is on fire ... Our plan is working. Why back up now?"
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The Canadian economy is, by many measures, on the up and up.
Unemployment rates have drifted downwards, reaching levels not seen since the months before the Great Recession. The GDP growth rate, a key measure of a country's economic health, has been impressive, with the overall economy growing by 4.6 per cent in the 12 months leading up to the end of May. The economy hasn't seen such lofty figures since 2000.
And despite uncertainty around NAFTA negotiations, the TSX has rebounded after a sluggish start to the year. Even industries sensitive to trade talks, like auto parts and railways, have seen share prices soar since President Donald Trump's election last November.
The government has said their plan has "invested in people" — giving Canadians tools like the child benefit, a "middle-class tax cut" and investments in infrastructure — and the results are starting to bear fruit.
Lower deficit gives spending leeway
Department of Finance figures show a deficit of $17.8 billion in the 2016-17 fiscal year, $5 billion less than earlier estimates thanks to higher revenues from a growing economy. (Although that figure is still higher than what was promised by the Liberals during the last federal election.)
"Combining the better starting point ... and updated economic forecasts, the projected deficit for the current fiscal year would be about $10 billion smaller than the $28.5 billion shortfall set out in Budget 2017. If the $3-billion risk cushion is removed, the deficit could be closer to $15 billion," Josh Nye, an economist for RBC Royal Bank, recently wrote in a letter to clients.
Based on current trends, Nye expects the budget shortfall by 2020-21 to come in below $10 billion rather than the $19-billion deficit originally forecast.
"The question is whether the federal government will spend some or all of the room freed up by this stronger-than-expected fiscal position," he said.
More spending planned
Amid the small business revolt over proposed changes, Morneau announced a cut to the small business tax rate, dropping from the current 10.5 per cent to 10 per cent on Jan. 1, 2018, before reaching nine per cent a year later. That policy change will cost an estimated $2.9 billion over the next five fiscal years.
The government is also expected to unveil the final details of its national housing strategy sometime this fall — the government already earmarked $11 billion over the next 10 years for the plan in its last budget — and a new proposal could be even more costly.
A more generous child benefit — the program already costs the federal treasury some $23 billion a year — could further reduce the fiscal room Morneau has with which to manoeuvre.
Nye, for his part, said he thinks the government should unveil a plan to return to a balanced budget, given the considerable strength of the current Canadian economy.
"While it is the case that the debt-to-GDP ratio remains manageable and is set to decline over the projection horizon, deficits as far as the eye can see are a concern when fiscal headwinds from an aging population are intensifying," he said.
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"A [balanced budget] would leave room to respond if the currently enviable trend in Canada's economy deteriorates down the road."
A government source, speaking on background, said, while growth and deficit numbers will be "great," the focus will be on continued investment and not setting a date to get back to balance.
With files from the CBC's Karina Roman and the Canadian Press