OTTAWA – Prime Minister Justin Trudeau is prepared to run larger deficits — growing Canada’s debt by 31.5 billion Canadian dollars ($23.8 billion) more than previously projected over the next four years — to finance campaign promises if his Liberal government is re-elected.
The Liberals released a costed fiscal plan on Sunday that shows deficits will be C$7.9 billion higher on average every fiscal year over the course of their next mandate should they win power in the Oct. 21 election. That’s despite plans to raise an average C$6.3 billion extra in revenue every year over that time.
The fiscal projection, part of the party’s full campaign platform, suggests the Liberals believe Canadians remain open to the idea the country can afford larger deficits to pay for new spending and tax cuts. The Liberals made a similar bet in 2015, when they broke with Canadian political convention and unveiled plans to deliberately go into deficit to finance spending.
Opinion polls show the Liberals are running neck and neck with the main opposition Conservatives, with neither party holding enough support to win a majority.
Politically, the higher deficits give the Liberals a potential wedge issue in a campaign where the two major parties have rolled out similar policy objectives — from tax cuts to helping first time home buyers and seniors. Conservative leader Andrew Scheer has yet to release his full fiscal projection, but has promised to release a plan that eventually returns the budget to balance.
“While others seek to move our country backward — balancing the books at all costs, on the backs of hard-working Canadians — we will move forward with the investments that we know make a real difference,” The Liberals said in platform documents.
Under the plan, the deficit would peak at C$27.4 billion next year, bringing it above 1 percent of gross domestic product for the first time since 2012, before dropping to C$21 billion by 2023.
The Liberals would retain the existing fiscal anchor, which is to keep the nation’s debt as a share of GDP on a downward trajectory — but just barely. The debt-to-GDP ratio would fall to 30.2 percent by 2023, from 30.9 percent last year. That’s well above the 28.6 percent the government had projected in four years’ time in its last budget in March. They also pledged to preserve Canada’s AAA credit rating.
The tax measures announced Sunday are short on details, but will be focused on corporations and wealthier Canadians, according to the documents. The Liberals believe they can raise an additional C$2 billion as early as next year by undertaking “a new comprehensive review of government spending and tax expenditures, to ensure that wealthy Canadians do not benefit from unfair tax breaks.”
They also expect to raise C$1.7 billion in 2020 by cracking down on corporate tax loopholes that allow companies to deduct debt. Other new measures include a 3 percent value-added-tax on digital companies with worldwide revenue of more than C$1 billion. It would take effect April 1 and would be expected to raise more than C$500 million next year. The Liberals also plan to impose a 10 percent luxury tax on cars and boats worth more than C$100,000.
The baseline projections the Liberals use in their fiscal outlook are from the Parliamentary Budget Office, rather than their own March budget. The PBO had projected the federal government’s deficit would be C$23 billion next year, and would fall to C$11.2 billion by 2023.
New campaign measures will cost C$9.3 billion in 2020, C$14.6 billion in 2021, C$16 billion in 2022, and C$17 billion in 2023 — totaling C$57 billion over a four-year mandate. The most expensive is a promise to raise the basic personal amount — the threshold under which no taxes are paid — by over 20 percent to C$15,000. Increased old-age supplement payments are the second most expensive item.
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