The Trudeau government’s second budget attracted much less favorable comment than the first. Unlike the first budget, slow economic growth is projected far into the future, and the Canadian government has given up on balancing the budget within its first term of office.

The current budget projects a $28.5 billion deficit in fiscal 2017/18 which gradually declines to about $21.7 billion as of fiscal 2020/21.

Nonetheless, the projected budget deficits are quite tiny when expressed relative to GDP (in the 1%-1.4% range), and at the same time, the government should be able to maintain a roughly stable debt to GDP ratio in the 31.5% range over the next five years, even though the projected deficits seem steep in nominal terms. 

The accompanying economic forecast in the budget document sets out a rather gloomy outlook for the Canadian economy.

Over the next five years Canada’s real GDP is expected to average growth of only 1.7% per annum, CPI inflation is expected to come in at around a 1.9% annual rate, and the Canadian dollar is projected to average to average fairly close to 75 cents US. Of course, the underlying oil price is also projected to be weak, and is projected not to exceed $60 US/barrel until 2021.

Critics have quite properly noted that the Canadian budget is light on spending but long on vision. While many of the government’s plans seem to be on hold, nonetheless Canada’s latest budget continues to modestly address social issues even though the actual dollar allocations are pushed further into the future than critics might have wanted. This Liberal government calculus is quite deliberate, and it relates to the timing of the four-year election cycle.

Ironically, the Canadian budget makes no direct mention of the uncertainties caused by Donald Trump’s economic and international trade policies, even though there is little doubt that the Canadian economy is seriously at risk because of the new American regime.

The President has promised to dramatically lower taxes, to promote Buy American policies, to renegotiate NAFTA and to introduce border taxes. Because Canada potentially faces a series of unknown negative fallouts from these initiatives, the cash poor Liberal government has postponed taking any action on some of its earlier promises to raise the capital gains tax and to increase the taxes of high-income earners. 

In closing, this has been very much a wait and see budget, depending upon American political and economic developments.

This is why many Canadian politicians and economists are waiting for the Fall Economic Statement to provide a more accurate picture of the how Canada will respond to any new economic threats.