UPDATE 2-Canada tax hike leaves hole, higher budget deficit eyed

Mon Dec 7, 2015 5:47pm EST
 
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(Recasts with fiscal impact, adds Morneau quotes, market reaction)

By Randall Palmer

OTTAWA Dec 7 (Reuters) - The Canadian government's planned tax hike on the rich will not cover the cost of a promised middle-class tax cut, an official projection showed on Monday, increasing the likelihood the budged deficit will be higher than forecast.

Finance Minister Bill Morneau, releasing the projection as he announced the new tax measures, repeatedly declined to say if he would adhere to the Liberal campaign promise to limit deficits to C$10 billion ($7.4 billion).

Instead, he said the economy was worse than expected and required government investments.

"What you can assume is that as we face up to an economic situation that is more challenging that we expected, as we face up to an oil price that is lower than we might have expected, we recognize that our economy is going to be challenged," he told reporters.

"So we're going to continue to move forward with those investments that we believe will improve our productivity and improve our level of growth."

His document showed the tax hike on the wealthiest 1 percent would bring in C$2.01 billion ($1.49 billion) in 2016-17, while the cost of the tax cut would be C$3.44 billion ($2.55 billion).

Led by Justin Trudeau, the Liberals took power last month promising the increased taxes would bring in C$2.80 billion, almost completely covering what they said would be the C$2.87 billion cost of the tax cut.   Continued...