Trudeau promotes spending to help economy as experts warn of weak outlook

(Photo from PM Trudeau’s official Twitter account)

OTTAWA—Justin Trudeau is talking up the need for more federal spending to help the economy—even as the experts warn his government of an ever-gloomier outlook.

Speaking in Toronto to mark his 100th day in office, Trudeau said it’s more important than ever for the Liberal government to spend on growth-generating projects, such as the party’s promised infrastructure plan.

The prime minister made the comments shortly after a group of private-sector economists shared their latest economic forecasts with Finance Minister Bill Morneau at a meeting just across town.

For decades, federal finance ministers have used an average of private-sector economic forecasts as the foundation of their fiscal plans.

The projections can have significant impacts on just how much wiggle room is available for governments to spend.

That fiscal flexibility is poised to be considerably tighter than it was in the fall, the last time the group was convened.

For example, Conference Board of Canada chief economist Glen Hodgson said he gave Morneau a 2016 growth forecast Friday of just 1.7 percent—one of the most optimistic predictions in the room.

But Trudeau said a struggling economy provides an even stronger argument in favour of the Liberal government’s job-creation plan: running deficits in the coming years in order to spend billions on stimulus like infrastructure projects.

Many experts, including Hodgson, say infrastructure investment is one of the best ways to stimulate an economy.

Trudeau also highlighted the other Liberal measures he said will help the economy, such as boosting child-benefit payments and providing some income-tax relief for middle earners while hiking rates for top earners.

He said Canadians voted for the Liberal plan instead of the platforms presented by the Conservatives and New Democrats, both of which argued it was more important to balance the budget at all costs.

“We said, ‘No, we need to invest at all costs,” Trudeau said.

In a recent interview published by Montreal’s La Presse newspaper, Trudeau said his government would not fulfil its promise to keep the 2016-17 deficit under $10 billion. He did not indicate how high the shortfall could go.

In that same interview, Trudeau also shied away from an earlier vow to balance the federal books before the end of his government’s four-year mandate, a pledge that was central to the Liberal election platform.

Instead, the government has been emphasizing its other, more flexible “fiscal anchor,” which is to continue lowering Canada’s debt-to-GDP ratio during its mandate.

While Trudeau has acknowledged government finances were even tighter than they were a couple of months ago, he has not indicated what will become of the Liberals’ many non-economic spending vows.

Morneau is facing fiscal pressure as he prepares his first budget, expected late next month. His department last consulted private-sector economists ahead of the November fiscal update.

At the time, the average 2016 projections for Canada’s real GDP was two per cent and US$54 per barrel of oil, which has a big impact on Ottawa’s bottom line.

On Friday, Hodgson said he told Morneau that the Conference Board’s growth projection for real GDP was 1.7 per cent for 2016, while it predicted oil to average about US$38.

“The economy is in not as good a shape as when the Liberals got elected,” said Hodgson, who also noted that uncertain global economic conditions have created a “very turbulent environment” for budget planning.

Ted Mallett, chief economist for the Canadian Federation of Independent Business, said he provided Morneau with a 2016 prediction of 1.5 per cent growth for real GDP. In the fall, he said the lobby group projected 2.1 per cent.

Mallett said his fall forecast for oil predicted an average of US$48 in 2016. That number was dropped to US$33 for Friday’s meeting with Morneau.

“And that’s still well above where we are today,” he said, referring to prices that fell below US$30 in recent days.

“I think everybody (at the meeting) realized the kinds of challenges that the minister is facing… Nobody was underestimating the kinds of issues that one would have to deal with in his shoes.”