Canada Minister Defends Deficit Spending Plans

Canada’s hot economy won’t push Minister of Finance Bill Morneau off his deficit spending plans, with the finance minister pledging continued cash for infrastructure and other programs to make the nation’s expansion sustainable in the long-term.

Morneau, speaking Tuesday to the Bloomberg Canadian Fixed Income conference in New York, struck an upbeat tone about the resiliency of the country’s economy—saying it can withstand a higher dollar while expressing optimism over risks such as rising interest rates and US trade talks, Bloomberg reported.

While other panelists argued that deficits should be reined in amid strong growth, Morneau gave no indication he’ll press for a return to balanced budgets as the economy improves. Instead, he hailed the merits of transfers to families, a tax cut to middle-income earners and infrastructure spending.

“I would say we’re very much on track,” Morneau said in the televised interview with Bloomberg. “We’ve seen a really positive trajectory, what we’ve said to people is we’re going to remain fiscally prudent, we’re going to continue to lower the amount of debt as a function of our GDP.”

The government’s main fiscal objective will be to lower the debt-to-output ratio, he said. Deficits coming in less than initially projected are a testament to his administration’s fiscal “prudence”, he added.

Last fiscal year’s deficit came in at about C$18 billion ($14.52 billion)—or more than C$11 billion less than initially budgeted—and this year’s C$28.5 billion projected gap is poised to be below target by a similar magnitude. Canada’s spending gap is less than 1% of GDP, the lowest among the Group of Seven nations after Germany, Morneau said.

The pick-up in economic growth poses a challenge for Prime Minister Justin Trudeau’s Liberals, who have put government spending at the forefront of their economic agenda.

Morneau was bullish on the economy’s ability to withstand the currency surge. Canada’s dollar, known as the loonie, is up 8.9% against the US dollar this year, among the best performers for major currencies.

The Canadian dollar reversed intraday losses after the finance minister’s comments and was up 0.2% at close of Toronto trading to C$1.234 per US dollar.

Morneau signaled the nation’s growth rate—which came in at 4.5% annualized in the second quarter—can continue to be strong, despite some one-time factors that have contributed to the economy. He said a tax cut for those earning between roughly C$45,000 ($36,000) to C$90,000, and increased child-benefit payments, have injected money into the economy.