Canadian Liberals set to bust deficit pledge as oil tumbles

Wed Jan 13, 2016 5:14pm EST
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By David Ljunggren and Randall Palmer

OTTAWA (Reuters) - Canada's Liberal government looks certain to break its promise to keep budget deficits to C$10 billion ($7 billion) a year but a deteriorating economy makes it hard to determine how large the shortfall will be, according to sources familiar with the party's plans.

The Liberals, elected last year on a promise to boost infrastructure spending, are likely to unveil their first budget by the end of March as decade-low oil prices slam economic growth and government revenues.

Finance Minister Bill Morneau has consistently sidestepped questions about the deficit cap, placing more emphasis on another pledge, to ensure the ratio of debt to gross domestic product (GDP) continues to fall.

"Let's be real here: the minister has already fundamentally said that the C$10 billion limit is out of the window," said one Liberal source, who declined to be identified because of the sensitivity of the subject.

Morneau said on Wednesday that now was the time to make promised investments in infrastructure, especially given very low interest rates.

Another source familiar with Liberal thinking said the party would find it hard to row back on its spending promises.

"It's going to be a bigger deficit than we expected. They've really committed themselves to the infrastructure spending," the source said. "The challenge right now is no one really knows where the economy is heading."

The government's fiscal update in November called for West Texas Intermediate crude oil at $50 a barrel in the first quarter of 2016, about $20 above where it is now. [O/R]   Continued...

Minister of Finance Bill Morneau, with Provincial Finance Ministers, takes part in a news conference in Ottawa December 21, 2015.     REUTERS/Blair Gable