December 2, 2015 / 6:49 PM / 2 years ago

UPDATE 1-Canada's Morneau leaves door open on bigger budget gaps

3 Min Read

(Adds finance minister's remarks on deficits and housing)

By Randall Palmer

OTTAWA, Dec 2 (Reuters) - Canada's finance minister on Wednesday left the door open to running budget deficits larger than the C$10 billion ($7.5 billion) the Liberals had campaigned on, saying that slow growth points to the need for government investments.

Minister Bill Morneau also told reporters that the government was continuing to pay very close attention to the hot housing market.

The Liberal platform for the Oct. 19 election had promised deficits of less than C$10 billion a year for the next two fiscal years, but that has not been the Liberals' emphasis since they took office on Nov. 4.

Morneau said the government was focused on three fiscal areas: making investments, especially in infrastructure, that make sense for the economy; reducing the ratio of debt to gross domestic product over the four-year mandate; and achieving a balanced budget.

Asked if he would keep the deficits to C$10 billion, Morneau would only say: "We're going to continue to talk about those three aspects of our promises, because we do want to focus on growth. We want to make sure that we deal with what we see as a low-growth economy."

The outgoing Conservative government ran up a record deficit, in nominal dollar terms, to fight the 2007-09 financial crisis but then returned to balance in 2014-15.

The Conservatives had projected a balanced budget for the current and future years, but Morneau put out a fiscal update on Nov. 20 that painted a significantly gloomier budget outlook, excluding Liberal spending and taxation plans.

Aside from the fiscal picture, one of the key files on which Morneau has been briefed is the hot housing market, particularly in Toronto and Vancouver, and the record level of household indebtedness.

Morneau said the government continued "to pay very close attention to the situation." He acknowledged the challenge that while the market is hot in those two cities, it is much less so in the rest of the country.

He said it continued to be important for homebuyers to make sure they can service their mortgages over the long term.

"To the extent that we need to provide any more guidance, we will," he said.

Asked if he was considering any new measures to cool things down, he said: "We're continuing to pay very close attention to the situation." ($1 = C$1.34) (Reporting by Randall Palmer; Writing by Leah Schnurr; Editing by Matthew Lewis)

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