November 1, 2016 / 7:37 PM / in 2 years

Canada to increase infrastructure spending as growth lags

OTTAWA (Reuters) - Canada will ramp up its spending on infrastructure projects by an extra C$81 billion ($60.49 billion) over the next 12 years in a bid to revitalize an economy struggling with sub-par growth, Finance Minister Bill Morneau said on Tuesday.

Canada's Finance Minister Bill Morneau speaks to a reporter after delivering the budget on Parliament Hill in Ottawa March 22, 2016. REUTERS/Patrick Doyle -

The extra money means Canada’s Liberal government - trying to deal with a prolonged oil slump that has slashed revenues - is committed to pouring a total of C$187 billion into infrastructure between now and 2027/28. In March, it had promised to spend C$120 billion over the next decade.

“This is unprecedented in our history. And it comes at a time when the need is great,” Morneau told the House of Commons as he presented a fiscal update, saying he wanted to invest for long-term success.

The Liberals of Prime Minister Justin Trudeau will also set up an infrastructure bank and give it access to C$35 billion. Morneau said it would attract as much as C$4 to C$5 in private capital for every tax dollar invested.

“The economic situation we’re in is challenging: global growth is challenged,” Morneau told reporters.

He cut the forecast for 2016 growth to 1.2 percent from the 1.4 percent he had predicted in his March budget. For 2017, he said growth would be 2.0 percent compared to an initial 2.2 percent.

The budget deficit for the 2016/17 fiscal year is now expected to be C$25.1 billion, less than the C$29.4 billion predicted in March - but that is only because the government is exhausting a C$6 billion annual prudence fund.

Ottawa plans to tap the fund every year until 2020/21, when it is expecting a deficit of C$16.8 billion. In March, Morneau had indicated the budget might be balanced by then.

But pressed by reporters as to when the shortfall would be eliminated, Morneau said he wanted to focus on investments.

The official opposition Conservative Party and other critics say Trudeau runs the risk of putting Canada on a path to permanent large deficits with precious little to show for it.

Bank of Canada Governor Stephen Poloz said late last month that Canada was in a very good fiscal situation and should not be worried about running up deficits at this point.

Reporting by David Ljunggren; Editing by Paul Simao and Chizu Nomiyama

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