Trudeau takes Canada back into the red to boost growth

Canadian Prime Minister Justin Trudeau's Liberal government announced Tuesday massive spending to try to force an end to years of stagnant growth recently compounded by the oil rout.

The proposed budget projects a deficit of Can$29.4 billion ($22.5 billion US) this year. The government says it hopes to boost growth by 0.5 percent in 2016-2017, and by 1.0 percent the following fiscal year.

Critics, however, say the scheme will create a larger government, not jobs.

The opposition Tories also blasted the finance minister for squandering a small surplus inherited from the previous Tory administration.

But the Liberals would have none of it.

"Today, we begin to revitalize the economy," Finance Minister Bill Morneau told parliament as he unveiled his first budget, signaling a hard break from austerity measures of the past.

Economic growth has been weaker than hoped for several years, slowing to 1.4 percent for 2016.

Private sector economists forecast it will rise to 2.2 percent next year (before factoring in the stimulus).

In his speech, Morneau recalled the post-world wars glory days, contrasting a then booming economy with the struggles facing millennials.

"It's no surprise that many Canadians feel they are worse off than their parents were at the same age -- and they feel the next generation will do worse than their own," he said.

"The reality is that we stand before a historic opportunity to shape and lead (the future). But to shape the future we must invest in the future."

Morneau reasoned that with interest rates at near historic lows (0.5 percent), there is no better time to borrow for the future.

Some economists also argue that the central bank has little wiggle room to stimulate the economy through monetary policy, so it is up to the government to step in.

- Ease gridlock: boost economy -

Morneau earmarked billions of dollars in expenditures for new mass transit, water treatment plants and sewers, roads and bridges, social housing, modern research labs and student grants, and faster Internet connectivity.

He said Ottawa would build schools and hire more teachers in aboriginal communities to help lift them out of severe poverty.

There are also monies (Can$2 billion) for a climate change strategy that remains largely undefined as Ottawa negotiates CO2 emissions cuts with the provinces.

Morneau also extended unemployment benefits to oil producing regions hard hit by the plunge in oil prices, and set aside funding to resettle at least 10,000 more Syrian refugees this year.

Purchases of new fighter jets and warships, meanwhile, were deferred until after the next election. And there was no new funding commitment to public safety.

Government revenues are forecast to fall slightly to Can$287.7 billion before rising in subsequent years, while expenses soar to Can$317.1 billion.

By the end of the Liberals' current mandate in 2019, Morneau vowed Canada's debt-to-GDP ratio -- which is already the lowest of any G7 nation -- "will be lower than it is today."

It is projected to be up slightly in fiscal 2016-2017 to 32.5 percent.

Canada's federal debt, however, would rise to Can$648.7 billion this fiscal year and continue climbing as the government posts deficits year after year with no end in sight: Can$29.4 billion in 2016-2017, falling to Can$17.7 billion in 2019-2020.

After two decades of belt-tightening by consecutive governments seeking to rein in out-of-control spending, the Liberals' fresh tack was expected to shock many Canadians.

For years, Canadians were warned against passing on a large public debt to their children and grandchildren.

But the latest polling shows Trudeau's popularity has continued to rise since his election in October, which was marked by a desire to try a new approach.
Source: AFP