No-one expected Finance Minister Bill Morneau's 2019 Budget, tabled on Tuesday, to set a course for restoring the Federal finances to balance. It didn't: the coming fiscal year will see a deficit of just under $20 billion (all figures in Canadian dollars), with only a very gradual decline after that. And everyone expected the budget, with an eye to the October election, to include some carefully-targeted new spending initiatives. It did: some $22 billion in new spending over the next five years. All in all, the only surprising thing about this budget is just how little it all adds up to.
The budget arrives amid signs that the Canadian economy is entering a slower phase of expansion. As usual, the Department of Finance uses an average of private sector forecasts for planning purposes. The consensus for GDP growth this year, at 1.8 percent, is slightly lower than before, but forecasts for the rest of the 5-year horizon are little changed at an average of 1.8 percent. Factoring in a marginally lower inflation outlook, the 5-year forecast for nominal GDP -- crucial in predicting revenues -- is slightly lower than before.
As for the fiscal outlook, it should first be noted that the outcome for the fiscal year just ending (2018-19) is much better than initially expected, in large part because of strong revenues. The final figure might have been as low as $9.1 billion, compared to a projection of $15.1 billion as recently as last fall, but in the time-honored way, the government has chosen to spend the bounty in this budget, bringing a final deficit for the year of $14.9 billion. That is set to rise to $16.8 billion in the new fiscal year, plus the customary $3 billion contingency provision to produce the final figure of $19.8 billion. The deficit is set to fall to $9.8 billion, still including the contingency amount, by 2023-24. This allows the debt:GDP ratio to fall gently from the current 30.8 percent to 28.6 percent by the end of the planning period.
In terms of specific spending measures, the favoured description among analysts seems to be "grab bag", which is accurate enough. Under the overall rubric of "investing in the middle class", the budget includes measures to improve affordability in the housing market; a start on a national pharmacare plan; skills training; infrastructure development; and reconciliation with Canada's indigenous peoples. A glance at the first two of these will serve to illustrate the lack of ambition in the overall plan.
The first element of the plan for the housing market involves allowing first-time buyers to withdraw a larger amount from their retirement savings in order to make a down-payment. The current limit of $25,000 will rise to $35,000. The obvious flaw here, of course, is that most first-time buyers have not had time to accumulate this much cash in their retirement plans. Add in the fact that even the higher limit is a mere fleabite in the context of home prices in Vancouver and Toronto, and this looks like an almost meaningless change.
The second part of the plan is a First Time Home Buyer Initiative, a shared equity scheme that will see the Government's mortgage guarantor, CMHC, offering help with down-payments in return for a share in the increase in the value of the property. Even the example quoted in the background paper makes it clear that the overall impact of this on mortgage affordability would be very limited, and there is of course the risk that the very existence of this programme will serve to push vendors' asking prices higher.
As for pharmacare, the absence of universal coverage for prescription drugs is one of the major lacunae, along with the absence of dental care, in Canada's national medicare plans. The budget proposes to make a start on rectifying this, but it's a very modest start. A Canada Drug Agency will be set up, tasked at the outset with developing a national formulary (or pharmacopeia, to use the old term) for eventual drug coverage. The fly in the ointment here is that health care is in fact the responsibility of the individual Provinces, with the Federal government only having a role in setting national standards. Given the fractiousness of the Provinces, and given that they will be the ones largely expected to pay for this, the establishment of a proper pharmacare plan lies far in the future.
The actual introduction of the budget on Tuesday was bizarre. The opposition parties had threatened to delay it, as part of their protests over the SNC-Lavalin affair, so Morneau resorted to a little trickery to get the documents tabled. The budget speech was delivered against a cacophony of opposition MPs calling for Jody Wilson-Raybould to be allowed to offer further testimony on the affair.
This is probably a preview of how the election campaign itself will unfold. The Liberals will try to press on with their agenda, such as it is, trying to ignore the SNC-Lavalin mess. The opposition parties will focus on the scandals, with the Tories throwing in a few accusations of fiscal irresponsibility for good measure. It's far from clear that Morneau's surprisingly unambitious budget will allow the Liberals to win that argument.
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