Canada’s Budget Watchdog Urges Carney to Show Numbers as Spending Rises

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(Bloomberg) — Canada’s budget watchdog urged Prime Minister Mark Carney to release an update on the federal government’s finances soon or risk eroding the government’s credibility with investors.

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Carney is promising to spend billions on infrastructure, military equipment, housing and transportation — part of his ambitious agenda to boost the potential of the Canadian economy. Those plans, combined with slow economic growth, are causing economists to forecast a larger federal deficit this fiscal year. 

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But the prime minister has put off the federal budget until October, citing the trade war and the shortened spring sitting of Parliament because of an election. Normally, budget documents are brought to the legislature in March or April.

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Yves Giroux, Canada’s parliamentary budget officer, said it’s “appropriate and necessary” for the government to give “at the very least an economic and fiscal update, to indicate what the path forward is.” 

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“There’s a lot of question marks on the government’s fiscal plan,” he said. “A budget would’ve been very helpful in clearing up the uncertainty and providing more detail.”

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Some of the government’s spending plans will show up immediately: it’s promised to add about C$9 billion ($6.6 billion) to defense expenditures this fiscal year, a move that has drawn praise from Canada’s allies in the North Atlantic Treaty Organization. 

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Canadian Imperial Bank of Commerce has estimated the deficit may rise as high as 3% of gross domestic product for the fiscal year that ends in March, which would be in the C$90 billion range. That would be more than double what the government projected in December. Bank of Montreal says the shortfall could easily top C$70 billion. 

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Carney’s government is betting that planned investments will increase the longer-term growth rate of the economy, which would eventually result in stronger and more consistent streams of tax revenue. 

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“Canada continues to have the lowest net debt-to-GDP ratio in the G-7 and is well-positioned to navigate global uncertainty,” said Audrey Milette, a spokeswoman for Finance Minister Francois-Philippe Champagne. “We’re not only strengthening our defense capacity and working towards our commitments, but we’re also supporting good jobs and long-term economic growth.”

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‘Progress Costs Money’ 

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Most economists say there there’s still room on the federal balance sheet for spending that boosts productivity and shores up the country’s depleted armed forces. But investors will be watching carefully, and the government shouldn’t necessarily expect a “warm welcome” from the bond market as it ramps up borrowing, according to CIBC. 

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“Overall, the significant amount of fiscal space available to Canada should be used, but progress costs money,” Ian Pollick, CIBC’s global head of fixed income, commodities and currency strategy, said in an interview.