Canada says deficits to be larger than forecast, no sign of return to balance

OTTAWA (Reuters) - Canada’s budget deficits will be larger than forecast for the next five years, Finance Minister Bill Morneau said on Monday, vowing to keep on investing in the economy given Canadians’ concerns about the future.

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Liberal Prime Minister Justin Trudeau came to power in late 2015 promising to run a series of limited deficits but the shortfalls have ballooned and Ottawa will now not say when it might return to balance.

The main opposition Conservative Party said Ottawa was “setting the stage for a made-in-Canada recession” while some economists expressed concern about the figures.

In his first budget update since the Liberals lost their majority in an October election, Morneau forecast the 2019-20 budget deficit would be C$26.6 billion ($20.2 billion), larger than the C$19.8 billion ($15 billion) he had projected in March.

“Nobody said it was going to be easy. Our challenge will be to continue to grow the economy and make sure we have the capacity to make the investments we want to make for Canadians,” he told a news conference.

The deficit is set to peak at C$28.1 billion ($21.36 billion) in 2020-21, before falling to C$11.6 billion ($8.6 billion) in 2024-25.

Doug Porter, BMO’s chief economist, said there was little room for new initiatives in next year’s budget.

“Given the advanced nature of this economic cycle, and an already tight job market, such a deficit bump seems far from prudent,” he said in a note.

Morneau said the economy was doing well, citing strong wage growth, and noted Canada was one of the few developed nations to have a AAA credit rating.

Asked about the risk of a recession, he said analysts from Canada’s major banks were not predicting one.

The government’s growth forecast for 2019 remained unchanged at 1.7%, while Canada’s debt-to-GDP ratio edged up to 31.0% in 2019-20.

Reasons for the larger than forecast deficits include tax cuts and spending measures, such as a boost in benefits to families with children.

The figures also take into account the fact that low interest rates have made pension liabilities higher.

The Conservatives accused the Liberals of irresponsible fiscal management.

“Justin Trudeau promised all this debt would make the middle class better off. The opposite happened,” said Conservative finance spokesman Pierre Poilievre.

The Conservatives though are in some disarray after leader Andrew Scheer announced last week he was quitting and are very unlikely to bring the government down.

Reporting by Kelsey Johnson, Editing by David Ljunggren, Bill Berkrot, Chris Reese, William Maclean