Stimulus budget in cards as Canada's Liberals look to eclipse crisis
By Julie Gordon
OTTAWA, March 17 (Reuters) - With a federal election looming
and Prime Minister Justin Trudeau's government facing its worst
political crisis in four years, Canada's ruling Liberals are
expected to table a goody-filled budget later this week in bid
to get back on course with voters.
Trudeau's Liberals surged to power in 2015 on a pledge to
jolt the economy by boosting spending, but their popularity has
dropped sharply in recent weeks amid claims that Canada's former
Justice Minister was pressured to help construction firm
SNC-Lavalin avoid a criminal trial.
Adding to the pain, economic growth slowed sharply at the
end of 2018 and, despite blockbuster job gains, Canadians are
feeling increasingly pessimistic about the future as record
household debt runs up against higher interest rates.
To counter the negative sentiment, Finance Minister Bill
Morneau is expected to make use of unexpectedly strong revenues
from the first nine months of the fiscal year to table a
stimulus-filled federal budget on Tuesday, the last budget ahead
of an October election.
High on the list of expectations is supports for millennial
home buyers, money for skills re-training, pharmacare help for
those lacking prescription drug plans through their workplace,
and new spending for families with children.
If Morneau wants to look fiscally prudent, the key will be
to divvy up only the unexpected revenue, and not disrupt plans
to reduce the net-debt-to-GDP ratio - a measure of how
burdensome debt is relative to the economy, said Derek Holt,
head of Capital Markets Economics at Scotiabank.
"If they want their cake and eat it too, you spend only the
unanticipated revenue surprise, and you keep your powder dry on
the rest," he said.
HOUSING FOR MILLENNIALS
New mortgage rules that came into effect last year, and five
interest rate hikes by the Bank of Canada since July 2017, have
left would-be buyers on the sidelines.
While the central bank says the changes have improved the
quality of new mortgage debt in Canada, they have also
contributed to a slowdown, with home sales slumping nationwide
to a six-year low in February.
"Our recommendations include restoring 30-year mortgages for
first-time home buyers and making some adjustments to the
current stress test now that the market has changed," said Kevin
Lee, chief executive of the Canadian Home Builders' Association.
Others options include bigger tax breaks for first-time
buyers and more space to borrow from retirement savings.
But economists warn that too many perks could inadvertently
reheat housing markets, putting ownership further out of reach
for millennials and other first time buyers, especially in
expensive cities like Vancouver and Toronto.
PHARMACARE AND MORE
The budget is also expected to propose a limited expansion
to Canada's healthcare system to cover part of the cost of
prescription drugs, Reuters reported in January, citing sources.
Budget documents may go into some detail, or just make a
general commitment to boost coverage, leaving specifics for the
And while one of the bright spots in Canada's sluggish
economy has been booming employment numbers, companies say they
are struggling to fill jobs requiring specialized skills,
notably in the technology and healthcare fields.
"We would welcome a focus on skills, since it could address
a current business challenge," said Craig Wright, chief
economist at the Royal Bank of Canada, in a research note.
Speaking at a shoe repair shop on Thursday, Morneau hinted
such measures would be coming.
"In our budget this year, that's what we're going to be
thinking about. How do we help Canadians to take time off ...
and how do they pay for their training?" he said.
The Liberals have faced criticism for backing away from a
pledge to balance the budget by 2019, but with a vote looming
the focus will likely be on setting up the campaign platform
with items to come. A deficit of C$18.1 billion ($13.6 billion)
is forecast for 2018/19.
"When it comes to how the deficit gets allocated, as we saw
in the last election, (voters) still like to see a check in
their own mailbox," said Avery Shenfeld, chief economist at CIBC
Capital Markets, in a research note.
($1 = 1.3346 Canadian dollars)
(Additional reporting by Allison Martell and Fergal Smith in
Editing by Denny Thomas and Nick Zieminski)
© 2019 Thomson Reuters. All rights reserved. Reuters content is the intellectual property of Thomson Reuters or its third party content providers. Any copying, republication or redistribution of Reuters content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters. Thomson Reuters shall not be liable for any errors or delays in content, or for any actions taken in reliance thereon. "Reuters" and the Reuters Logo are trademarks of Thomson Reuters and its affiliated companies.