October 24, 2017 / 8:12 PM / a year ago

Canada says 2017/18 budget deficit to be smaller than expected

OTTAWA, Oct 24 (Reuters) - Canada’s Liberal government unveiled a smaller-than-forecast budget deficit for 2017/18 on Tuesday as it pressed forward with more stimulus spending on families, but did not project the budget would return to balance in the next five years.

Finance Minister Bill Morneau, under fire in recent days amid conflict-of-interest allegations, pointed to stronger-than-expected economic growth as proof the Liberal strategy of deficit spending had paid dividends in the two years since Prime Minister Justin Trudeau won a surprise majority.

The deficit was projected to shrink to C$19.9 billion ($15.7 billion) this fiscal year from C$28.5 billion projected in the March budget, but the improvement included a reduction in the government’s so-called fiscal cushion to C$1.5 billion from C$3 billion in March.

The deficit was projected to shrink further, to C$18.6 billion in 2018/19 and to C$12.5 billion by the end of the budget’s five-year horizon in 2022/23. Each of those years included a C$3 billion cushion to guard against an unexpected event that could hurt the government books, a risk adjustment that economists consider prudent.

Morneau said the government would strengthen the child benefit by indexing it to inflation starting in July 2018, a pledge that will cost C$5.6 billion over five years, and increase the tax benefit for low-income workers. ($1 = 1.2674 Canadian dollars) (Reporting by Andrea Hopkins and Leah Schnurr)

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