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Fiscal update again digs a bit deeper

People aren’t surprised when governments bend their political promises. When they start to reach a breaking point, however, it can cause some discomfort.

Much has been made about the federal Liberals’ campaign pledge to run moderate deficits, in part to help a sluggish economy. Murmurings began not long after they were elected, as the amounts to be spent over and above revenues increased – figures delivered along with vague responses about when the government would return to balance.

The update this week from Finance Minister Bill Morneau tells Canadians his government will add an additional $31.8 billion onto the debt over the next five years. This latest set of figures projects a total of $114.9 billion in deficits between 2016-17 and 2020-21.

Again, along with social spending deemed crucial, the aim is stimulus spending amid continuing slow economic growth.

But, notably, it’s a far cry from the deficits pledged during last fall’s campaign of no more than $10 billion a year over the next couple of years. And, again, no predictions about when the government might be able to return to balanced budgets.

Some would describe that as reckless – and you can count the opposition Conservatives among those.

On the other hand, the government is trying to make the most of stimulus spending, including setting up an infrastructure bank in hopes of attracting private investment. They’re aiming to help those on lower incomes – money that gets spent on necessities. And in their deficit financing the Liberals are keeping an eye on the net debt-to-GDP ratio.

The goal – and for some it might be a matter of faith – is to help nudge along the economy as best as possible in the otherwise foundering short- to middle term to provide for a stronger economy in the long term.

Not all economists are convinced this strategy works like that every time applied, but it has its proponents.

One thing the Liberals need to keep in view is timelines involving continued deficits beyond the next election. If Canadians still see a sputtering economy going on 2019, with a ballooned deficit and debt, that would be gravy for any campaigning opposition parties.

Also, stimulus spending if it does indeed work is thought to take time for the effects to show. That could well mean another government cheerfully taking credit in 2020 for a rosier outlook.

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