Canada's Liberals to cap budget deficit at C$30 bln -sources

Tue Feb 23, 2016 5:30pm EST
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By David Ljunggren

OTTAWA Feb 23 (Reuters) - Canada's ruling Liberals will cap the coming year's budget deficit at C$30 billion ($21.81 billion)- three times larger than originally pledged - as they try to stick to long-term budget plans, according to senior government sources.

Four insiders, who spoke on condition of anonymity because of the sensitivity of the topic, said a 2016-17 deficit of C$30 billion, or about 1.5 percent of GDP, is the most Prime Minister Justin Trudeau's team will tolerate given its longer-term goal of lowering the country's debt-to-gross domestic product ratio, now about 31 percent.

"The maximum deficit we can run and keep the ratio falling is around C$30 billion and that is the absolute upper limit," said a top Liberal with knowledge of Trudeau's thinking.

A pledge to break with austerity by running annual deficits of C$10 billion helped Trudeau defeat the Conservatives in last year's election.

But since then, weak oil prices have sapped economic growth and tax revenue. Finance Minister Bill Morneau said on Monday the 2016-17 budget gap would be C$18.4 billion even before promised stimulus measures that economists see adding C$10 billion to $12 billion..

"If you're going to go big, you go big at the beginning, and then start tapering back," said another government official.

The Liberals will release the federal budget on March 22.

Liberal legislators and officials said the dire state of the economy meant there was little open dissent inside the caucus about running a deficit much larger than the party campaigned on.   Continued...