November 20, 2015 / 4:13 PM / in 2 years

CORRECTED-UPDATE 1-New Canada Liberal govt says inheriting gloomier fiscal outlook

(Corrects figures in 7th paragraph to show that deficit would be C$900 million and not C$3 billion in 2016-17, and that subsequent years would show surpluses and not deficits)

By Randall Palmer

OTTAWA, Nov 20 (Reuters) - Canada’s new Liberal government said on Friday it was inheriting a significantly gloomier fiscal picture than previously expected, projecting billions of dollars of deficits despite previous Conservative forecasts of surpluses.

A large portion of this worse outlook is because the Liberals, who defeated the Conservatives in last month’s federal election, lowered economic growth forecasts to levels well below the downwardly revised levels predicted by private-sector economists.

The move effectively adds a buffer or contingency reserve for worse-than-expected growth.

The fiscal update from Finance Minister Bill Morneau does not include infrastructure spending and other measures the Liberals pledged ahead of the election.

Excluding these, the government forecast the deficit would be C$3.0 billion ($2.3 billion) in the current fiscal year and C$3.9 billion in 2016-17, with deficits continuing through 2018-19.

This lower growth forecast adds C$1.5 billion to the projected deficit for 2015-16 and C$3.0 billion for each of the five years from 2016-17 on.

Without that economic adjustment, the deficits would be C$1.5 billion for 2015-16 and C$900 million for 2016-17, with surpluses in subsequent years.

The Conservatives had insisted that the budget was in balance for the current year and had campaigned on keeping it in balance in coming years, warning against further deficit spending.

But the Liberals, who took power on Nov. 4, used the new numbers, including their downwardly revised growth provision, to blame the Conservatives for an outlook that is worse than had been projected.

“These are the fiscal projections inherited by this Government,” they said in the autumn economic and fiscal update. (Editing by James Dalgleish)

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