Cash-strapped Liberal budget likely more policy document than spending plan

The Trudeau government will unveil a federal budget today that's expected to be heavy on policy and light on spending.

The second budget of the Liberal mandate is poised to focus more on the social policies central to its agenda, from skills to job training, from child care to affordable housing.

In particular, the government plans to take steps they hope will help, and reassure, those who fear being left behind by a coming sea change in how economic engines function around the world.

The budget comes at a time when Ottawa has very little room to introduce new spending. The country has struggled with disappointing growth, and the Liberals have already made billions and billions of dollars worth of commitments in last year's budget.

But even without big-ticket spending, a government source sought Tuesday to counter lowered expectations for the budget, insisting instead that the document would contain "transformative" and "bold" policy direction.

"Not everything is spending, not everything is money," said one Finance Department source, speaking on condition of anonymity in order to discuss details in advance of the budget's release.

"The budget's a public policy document and I think the story will be much more into where the country needs to go as opposed to dollar amounts... If you're just looking at tables, that's not where this story is going to be."

A key budget theme will be the government's focus on easing concerns about the future of Canada's labour market.

Finance Minister Bill Morneau dropped some major hints in a speech last week in Germany, where he argued that "anti-globalization, protectionism and even anti-immigration sentiment" are stoked when people feel nervous about their future.

"They look at the pace of technological change, and the seemingly never-ending need for new skills, and are understandably stressed about the future. It's hard to feel confident, and to face every day with optimism, when you can't see what's around the corner."

One way to respond to that challenge, Morneau said, would be "a culture of lifelong learning, helping people develop the skills they need at every stage of their life to succeed in the new economy," which he said he would be taking steps to create.

And while the annual tradition of the finance minister buying a new pair of shoes often brings clues about the budget narrative, the symbolism this year seemed heavier than most.

The dress shoes, black with laces, were designed by the two Canadian sisters behind Poppy Barley, an Edmonton company that says its shoes are hand-crafted by fairly paid artisans in Mexico. Morneau donned the shoes in a Toronto classroom, surrounded by children of diverse backgrounds, including girls wearing the Muslim hijab.

The Opposition, meanwhile, wants to see more than just bold ideas.

"Justin Trudeau has racked up the credit card and now he needs money to pay the bill," said interim Conservative leader Rona Ambrose, who said she expects to see tax increases in Wednesday's document.

New Democrat MP Alexandre Boulerice said the time has come for the government to close tax loopholes that benefit the rich, and use the proceeds to help more people.

"We can bring back billions of dollars for our social programs and public services," Boulerice said.


Here are five things to look for in the budget:
    
1. Will the government provide a timeline to bring the country's books to balance?

The Liberals won the 2015 election on a platform that vowed to invest billions in measures like infrastructure and child benefits as a way to re-energize Canadian growth. They planned to run deficits to finance the investments, but promised annual shortfalls would not surpass $10 billion during the first couple years of their mandate. The Liberals also vowed to return to balance by 2019-20. Since taking office, however, the government abandoned those promises, citing a weaker-than-expected economy. Last fall, Finance Minister Bill Morneau's fiscal statement projected a string of double-digit deficits until at least 2021-22, starting with a $25.1-billion shortfall in 2016-17. Many economists have been urging the government to map out a timetable to eliminate the deficit. Morneau has instead focused on another so-called fiscal anchor, promising to lower the country's debt-to-GDP ratio, a measure of the public debt burden, by the end of the Liberal mandate.

2. If Canada's staying in deficit mode, how big will the shortfalls be?

Morneau has projected annual shortfalls across his outlook, but it remains to be seen how those predictions have evolved since his last update in November. Much has changed since then. The Canadian economy delivered a surprise in the final months of 2016 with growth that easily surpassed forecasts. The economic momentum has continued through the first months of 2017, with unexpectedly strong performances in key areas like trade, labour and housing. Economists have translated these promising indicators into more robust growth projections. Some experts are now predicting smaller deficits for the next couple of years; indeed, some believe the economy has improved so much since January that the forecast in Morneau's budget could be needlessly pessimistic, making it easier to beat those lower fiscal expectations down the road. Another key consideration is the potential impact of U.S. economic proposals, many of which could have major consequences for Canada. Those factors, however, have largely been left out of economic projections because the Trump agenda remains uncertain.

3. Will Ottawa re-introduce a contingency reserve?

Federal governments have long used accounting actions to set aside funds for emergencies. In recent years, the so-called contingency reserves have ranged from $1 billion to $6 billion per year. Last fall, the Liberal government removed the $6-billion annual risk adjustment that it introduced earlier in 2016 to cover unexpected problems. A government can also give the public a fresh look at its fiscal trajectory by tweaking the accounting buffers; Ottawa's deficit figures appeared slimmer last fall after it was eliminated. With so many unknowns tied to potential policy moves in the U.S. on taxes and trade, some economists predict the government will re-introduce a contingency reserve to provide a cushion for Canada's books.

4. What will be the scope of the feds' tax-expenditure review?

Morneau launched a comprehensive review of the tax system last June that enlisted seven experts to advise him on how he should proceed. During the election campaign, the Liberals vowed to undertake a broad review of existing tax expenditures as a way to find $3 billion per year in new revenue by 2019-20. The Liberals said their aim was to reduce tax benefits for the rich. But since the election of U.S. President Donald Trump, Ottawa is expected to proceed with caution. The Trump administration has indicated it wants to slash personal and corporate taxes in the U.S., which many fear would put Canada at a significant competitive disadvantage with its top trading partner. Experts have called on Ottawa to wait to see what Washington does before introducing major tax changes of its own in Canada. Sources say the review process is ongoing, meaning the budget will not include the full range of tax changes. However, the budget is expected to contain at least a few smaller tax adjustments.

5. How will the budget address gender gaps?

Morneau has promised to run his budget through a gender-based analysis and to publish the results. Such a tool would be expected to explore how a given budget measure might have different impacts on men and women as well as boys and girls. These studies also consider age, income, culture, ethnicity and other factors. This year's analysis is expected to examine how some of the big budget themes will affect genders. It's also expected to lay the foundation for a more in-depth process next year. Morneau's department plays a special role in gender-based analysis. Not only does it look at its own policies through this lens, it also reviews how other departments examine budget proposals before they are sent to Morneau's office.