Economic growth in Canada was almost non-existent in the fourth quarter of 2019, due to a collapse of oil prices and a continued decline in housing and business investment.
Morneau said that the government had already projected two quarters of weak growth — the fourth quarter of 2018 and the first quarter of 2019 — before the economy once again picks up steam.
Federal budget 2019: Liberals raise stock option taxes on high-paid executives
“We’re expecting…that we will have a return to growth at expected levels in the second quarter (of 2019) and our long-term forecasts are positive,” Morneau said in Toronto at a breakfast event for members of the Canadian Club Toronto, the Empire Club of Canada and the Toronto Region Board of Trade.
Earlier this week, Fidelity Investments portfolio manager David Wolf, a former adviser at the Bank of Canada, suggested Canada may already be in a recession, even if the economic numbers do not match the technical definition of two consecutive quarters of economic decline. GDP shrank by 0.1 per cent in November and December. Due to a stronger-than-expected October, Canada eked out 0.4 per cent growth in the fourth quarter.
Gluskin Sheff chief economist David Rosenberg has also said that recession is unavoidable this year and that if Canada isn’t already in one, it’s one rung away on the ladder.
One of the driving factors leading economists to begin to hypothesize about a recession is the sharp decline in Canada’s housing market and increasing household debt.
The Liberal government addressed concerns about housing affordability in this week’s Federal Budget by introducing a mortgage incentive for first-time home buyers earning under $120,000 per year. For buyers who meet the criteria, the government will finance five per cent of mortgages on existing homes and 10 per cent on those that have been newly-constructed.
You remember the Canada Infrastructure Bank. It was the arms-length agency that was designed to attract countless hundreds of billions from Norwegian and Emirati pension funds to pay for game-changing new public infrastructure. Monorails. Spaceports. Now we learn that the Bank is examining opportunities… to seek to invest $1 billion over the next 10 years and leverage at least $2 billion in additional private sector investment to pay for this broadband.
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Finance Minister Bill Morneau tabled a pre-election budget today designed to calm Canadians worried about retiring with financial security, getting the skills they need to land new jobs, or being able to afford a first home.
Here and there you still find glimpses of an activist and imaginative government. Ill get to the big numbers, but I was struck, and encouraged, by a smaller one. On page 156 of Bill Morneaus 460-page 2019 federal budget theres $30.5 million over five years for expanded access to safe prescription opioids, protecting people with problematic opioid use from the risks of overdose and death.
Morneau's fourth budget — a springboard for the Liberal platform heading into the fall election campaign — delivers few big-ticket, signature programs but offers several new lower-cost programs that target key electoral constituencies: millennials, workers, businesses and seniors.
"There's a growing sense of uncertainty taking root around the world, and Canada is not immune to those worries," Morneau said.
The minister was scheduled to deliver the speech just after 4 p.m. ET in the House of Commons after the markets closed. But the Conservatives — outraged by the Liberals' decision to shut down the Commons justice committee's study of the SNC-Lavalin affair instead of recalling former justice minister Jody Wilson-Raybould to testify — delayed it by dragging out a vote on a motion about MP travel.
Morneau tabled his budget and left the House without giving the speech. When he eventually returned and rose to speak, opposition members tried to drown him out by banging on their desks.
The thumping and shouts of "let her speak" and "coverup" were so loud that people gathered in the public gallery could not hear what Morneau was saying. He carried on with his speech; the Conservatives eventually staged a walkout from the chamber as he spoke.
The budget's single biggest investment is in Indigenous services and Crown-Indigenous relations: $8.1 billion over five years for services to improve children's health care and end boil water advisories on reserves and to settle land claims, among other measures.
A national pharmacare program has been a marquee Liberal promise for years. This budget doesn't earmark significant money to create one — but it does set aside $35 million to create a Canadian Drug Agency that will build on work already done by provinces and territories on bulk drug purchases and negotiate better prices for prescription medicine.
There's also $1 billion to help Canadians with rare diseases access the high-cost drugs they need, though that money doesn't kick in until 2022.
Morneau said many hard-working young people see buying a home as an "impossibility." The government wants to change that with a new shared mortgage program that could offset the purchase price by up to 10 per cent.
The budget also boosts the amount that can be withdrawn from RRSPs for a first-time home purchase — to $35,000 from the current $25,000.
Low-income seniors will see changes to the Guaranteed Income Supplement which will allow them to keep more of their income if they choose to stay in the workforce.
The budget also introduces safeguards to protect pensions in the event of company bankruptcies, and offers supports to community projects that improve the lives of vulnerable seniors.
"Women and men who have worked hard their entire lives … deserve a secure and dignified retirement, free of financial worries," Morneau said.
Bank of Montreal chief economist Doug Porter said the options taxation move may actually lead to higher pay for senior executives over time to partially compensate for the increased tax hit, he said. I think ultimately they will not be much worse off.
Morneau's 460-page budget, titled Investing in the Middle Class, offers no timeline for erasing the deficit.
Hassan Yussuff, president of the Canadian Labour Congress, called the change a move in the right direction to close a loophole thats only benefited a small group of people to the detriment of a fair tax system for the rest of the country.”
The Liberals had pledged to run deficits to finance a massive infrastructure program, but broke their promise to return to balance by 2019.
Former Saskatchewan finance minister Janice MacKinnon predicts that could be a problem for many voters.
Millennials. Seniors. Blue-collar workers are all targeted for new spending, whether it's help buying a first home, enhancements to the Canada Pension Plan or money for training. Mix in the Canada Child Benefit from Morneau's first budget and from cradle to the grave, this government is putting more money in Canadians' pockets.
"I think this one is going to go beyond the numbers to a trust issue. It was a fundamental promise of this government to handle finances carefully, limit deficits and balance the budget," she said.
"They've broken other promises, (like) electoral reform, but at least they tried. They gave it a shot. There was never, in the term so far of this government, an attempt to restrain spending."
Morneau talked about that sense of anxiety even as he rang off the strong job growth numbers, how 54 per cent of those new jobs went to women. He mentioned it as he spoke about the biggest wage jump in a decade last year, and that Canada continues to lead the other G7 countries in economic growth.
The budget projects a $20-billion deficit next year, which is scheduled to fall to $15 billion two years later, then to $10 billion in 2023-2024.
Morneau said Canadians are also nervous about the labour market and the mismatch between their skills and those employers are seeking. The budget introduces a new, non-taxable Canada Training Benefit designed to help Canadians plan and pay for skills training. It includes a benefit with income supports covering the worker's training period.
"This government doesn't have anything in this budget to build new affordable housing, nothing in this budget to address co-operative housing, or non market housing, instead they are offering people to use their RRSPs to buy their home," he told reporters.
"Canadians at all stages in their working lives should have the opportunity to learn new skills to take control of their future," Morneau said.
But MacKinnon said there's no data to show exactly which skills are being sought by emerging job sectors. She said the government has failed to collect that crucial data, leading to a "mismatch" between skills training and what employers need.
Conservative Leader Andrew Scheer said the budget has no legitimacy, arguing Prime Minister Justin Trudeau is spending tens of billions of dollars on a desperate attempt to distract from the SNC-Lavalin scandal that has engulfed his government for weeks.
"This is the most expensive coverup in the history of coverups," he said. "Deficit spending today, to cover up a scandal, to be paid for by higher taxes after the election."
As he rolled out his budget, Morneau also took time to tout the government's past accomplishments, including the Canada Child Benefit that he said has helped to lift 280,000 children out of poverty. He said the federal government's "historic investment" in infrastructure has funded 33,000 projects and created well-paying jobs across the country.
In a news conference, Morneau defended the government's decision to continue running deficits, arguing the Conservative plan to "balance the budget at any cost" would mean deep cuts that harm Canadians.
"We are convinced that if we took their approach, we'd be back in the situation in 2015 that they left us with — stubbornly high rates of unemployment and, as we came into office … two quarters of negative growth, which economists will tell you is a recession," he said.
NDP Leader Jagmeet Singh said the budget does nothing to build much-needed affordable housing, and suggested the RRSP measure will be of little help since most millennials haven't stashed that much away.
"How many millennials … have enough in their RRSP to buy a home? It shows how disconnected Mr. Trudeau is with respect to what Canadians are going through," Singh said.
Sahir Khan, executive vice-president of the Institute of Fiscal Studies and Democracy at the University of Ottawa, said it's hard to give credit to any one government for a strong economy, just as it's not always fair to blame a government when the economy goes sour.
"I think they've made certain investment decisions, certain expenditure decisions that should position Canadians for the economy going forward, particularly an innovative economy," he said.
"But this budget isn't it. I think this is a fairly modest budget that is politically focused and moves their agenda forward, but not in a particularly ambitious way. It's a way that focuses on the upcoming election."
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