Bill Morneau planning cautious budget as he waits on Trump

Bill Morneau’s second budget will be short on new spending and will include what amounts to a “down payment on the innovation agenda,” as the finance minister takes a wait-and-see approach over the uncertainty surrounding U.S. President Donald Trump’s economic agenda.

A senior government source says this budget will set the stage for what could effectively be a two budget year, with a significant fall fiscal update that would be able to factor in the full implications of the coming U.S. budget.

Morneau’s budget will be delivered during the week of March 20. The expectation was that it would be a so-called “innovation budget”  — outlining the beginnings of a plan to re-engineer the Canadian economy — but government officials have been keen to tamp down those expectations in recent weeks.

Morneau is set to speak with reporters following question period today.

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Trump’s promise of massive personal and corporate tax cuts, as well as a trillion dollars in infrastructure spending, is a key factor in this “prudent” approach, the government source said.

But finance officials are also worried about the downside risk presented by low Canadian economic growth and continued global economic uncertainty. There is also a distinct lack of fiscal room for new spending due to the government’s earlier decision to enrich child benefit programs and spend big on infrastructure.

The budget will include new spending in some key areas of the innovation agenda — notably in skills development and training for workers, as well as talent recruitment.

But it will focus heavily on providing specifics on the billions in spending announced in the Trudeau government’s first budget last year, rather than rolling out a large suite of new programs.

Finance Minister Bill Morneau is planning to release a budget in two parts, with the fall fiscal update doing the heavy lifting required to respond to the measures in U.S. President Donald Trump’s first budget. (Nathan Denette/Canadian Press)

Budget 2017 to clarify budget 2016

One area that will be fleshed out will be the $800-million strategy to support what the government calls “innovation networks and clusters.”

That money was supposed to be spent as $200 million a year over four years, but not a dime has gone out so far. Budget 2017 will detail how some of that money will be spent as well as providing greater specifics on the $186 billion in infrastructure spending the government has promised over the coming decade.

Morneau is taking this cautious tack despite better than expected growth numbers in the fourth quarter of last year and a number of other factors that are likely to have a positive impact on the economy.

For all of the uncertainty surrounding Trump, his economic plan is expected to jolt the U.S. economy — at least in the short term — and lift the Canadian economy with it.

Oil is now trading above $50 a barrel, compared to the low $30-range a year ago. If it can break through the $60 mark and stay there, Alberta could see a sharp turnaround in its economic fortunes and add billions to federal revenues.

But Morneau has opted to pace himself. And instead of delivering the definitive innovation budget that industry players were hoping for, a government official says there will be components of the innovation strategy sprinkled through each budget of this mandate.

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Defence spending pushed to fall

The budget will also be short on spending in key areas such as defence.

A government official says the recommendations from the defence policy review won’t be ready in time for inclusion in the budget. Instead defence plans will be revealed later in the year — most likely in the fall update, which could grow into a de facto mini-budget.

One other outstanding issue the federal government is trying to finalize by budget day is the health accord deals the Liberals have yet to sign with four holdout provinces: Ontario, Quebec, Alberta and Manitoba, who have so far refused to sign-on to the government’s offer for additional targeted health funding.

The government official expressed optimism that deals could be reached with several of those provinces by budget day

Article source: http://www.cbc.ca/news/politics/morneau-budget-trump-march-1.4013632?cmp=rss