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Canada Announces a $30 Billion Deficit and 10,000 More Syrian Refugees

Finance Minister Bill Morneau unveiled the new government's first budget on Tuesday. It's expensive.
Justin Ling
Montreal, CA
Photo via David Kawai/Daily VICE

Bill Morneau, Canada's finance minister and a well-heeled financial sector veteran, unveiled the country's first real stimulus budget in eight years.

Punching back against weak global growth, rock-bottom oil prices, high unemployment, and an increasingly worthless Canadian dollar, Morneau — the financial brain trust hand-picked by Prime Minister Justin Trudeau — announced ambitious new spending programs targeted at kick-starting the moribund economy.


The big-ticket items of the budget include already-announced initiatives, like nearly $12 billion in infrastructure spending over 10 years, a new childcare benefit that comes with a $40 billion pricetag over two years, and tax cuts for the middle income tax bracket.

But with nearly $20 billion in new spending, there was lots of money to go around.

Photo via David Kawai

The Green Economy and Oil

One of the biggest pockets of money, aside from the cash going towards paving roads and funding public transit, will be going into green technology and climate change.

The hallmark item of the Trudeau government's green shift is $2 billion over the next two years for a 'Low Carbon Economy Fund.' The money, the budget says, will be thrown at projects that reduce greenhouse gas emissions and that fit in with current plans.

Stacked on top of the fund is hundreds of millions more for green technology — $30 million this year for investment in electric, natural gas, and hydrogen-powered vehicles; $1 million for improved data on clean technology; $25 million for the oil and gas industry to reduce their own carbon footprint.

But the budget pulled punches on the oil and gas sector. While some expected that Trudeau would phase out federal subsidies, the budget largely spares the energy industry from any further grief.

In fact, the extractive industry generally fared pretty well in Trudeau's first budget.

The budget commits $20 million over five years to extend studies in the north to analyze the impact of industry development on Arctic communities and ecosystems, "and inform whether oil and gas activity should proceed in these regions." Then there is $50 million that go towards the extractive industry to invest in cleaner technologies. A $20 million-per-year tax credit for mining companies that was scheduled to expire this year but, "given this challenging time for junior mining companies," the budget extends that credit for another year.


Open Government and Education

An entire section of the budget promises "open and transparent government," but commits just $20 million, over two years, to actually open up government institutions. Included in that is $7 million for expanding the access to information system, $5 million for open data programs, and $9 million to consult and study whether to implement a new electoral system.

One big promise that Trudeau followed through on in Tuesday's budget was a commitment to extend the freedom of information regime to every corner of his government — including the offices of all of his ministers, even his own — an initiative he pledged to stick to in an interview with VICE News.

Conspicuously missing from this budget, however, is any new funding for government watchdogs. No new money was earmarked for the Auditor General, Information or Privacy Commissioners, Security Intelligence Review Committee — which oversees Canada's main spy agency — or the Commissioner for the Communications Security Establishment, which handles signals intelligence.

This, despite the fact that those offices have faced chronic funding shortfalls in recent years, with some being virtually unable to cover their operation costs.

The budget makes a point to emphasize help for students, but the actual impacts might not be so rosy.

Photo via David Kawai

The budget plans to boost the Canada Student Grant program to the tune of an extra $1,000 per year for low-income families and $400 for middle-income families, while the Canada Student Loan program will be recalibrated to ensure that students don't have to begin paying back their loans until they begin earning $25,000 per year — up from the current $20,500.


All of the budget's student assistance programs come out to $773 million over two years. To pay for it, Ottawa is axing two tax credits that cover some costs of tuition and textbooks, worth about $550 over the same period, and they'll be forgoing other planned measures regarding student loans and grants, worth $189 million.

Doing the math, that means Ottawa will be spending $17 million more on making post-secondary education more accessible.

Immigration and Refugees

One of the early hallmarks of Trudeau's government was his aggressive — and, generally successful — plan to resettle 25,000 Syrian refugees in three months.

With this budget, the government is laying the groundwork to resettle 10,000 more.

To do it, the budget is committing $245 million over five years, starting this year, to resettle the next wave. Financial estimates provided with the budget suggests that the resettlement will happen sooner rather than later, with the vast majority of that funding coming before the second half of 2017.

The budget is also pouring money into the immigration system — a system which, for a decade under the previous Harper government, was designed to filter out immigrants and allow the government to become more selective about who it allows in.

Trudeau's budget will kick in $25 million to speed up family reunification programs, which allow citizens and residents to sponsor family members who want to resettle from abroad. Another $19 million will boost the intake of permanent residents to the country.


Photo via David Kawai

Debt, Debt, Debt

With this budget, Trudeau punches his membership card to the 'stimulus club' on the world stage — the collection of world leaders, including Barack Obama and François Hollande — who believe that state spending is the remedy for sub-par global growth.

Morneau's budget predicts that his billions in new spending will spin off a half-percent of growth this year, growing to one percent by the year after. Going forward, assuming the price of crude oil picks up and passes $60/barrel again, the budget predicts that growth will average around two-percent.

But that spending doesn't come for free. Despite extraordinarily low interest rates, Canada will still be looking at nearly $150 million in debt services charges over the next five years, and it will see its debt-to-GDP ratio — a figure that Trudeau vowed not grow — will hit 32.5 percent next year before, the government hopes, it goes down again.

Conservative leader Rona Ambrose called the budget, and its deficit, a "nightmare scenario."

Debt was definitely on the government's mind when they drafted this budget. Or, perhaps, they've just been inspired by the Wall Street-bashing from Democratic primary candidate Bernie Sanders.

Taking an idea that was introduced — but never acted upon — by the previous government, Morneau introduced a novel idea to prepare care for another debt crisis.

It's call a 'bail-in' regime, and it's designed to ensure that the state doesn't have to bail out banks — especially ones 'too-big-to-fail' — like Washington found itself doing in 2008.

Bail-in means that, instead of taking public money, failed banks would turn their debt into common shares, allowing the public to buy them — essentially, buying up the debt and hoping to get the investment back with interest. The budget promises that other tools will be coming in the near add more safeguards around Canada's already tight-fisted banking regime. The budget is also kicking in millions more to study household debt, monitor the financial sector, and supervise public pension plans.

Missing from this budget is a 'contingency fund' — a cushion of money that is designed to cover any unexpected shortfalls in revenue or cost over-runs that occur in the course of the year. Rules govern how that fund works, and how it can be spent.

Instead, the finance minister merely cooked up his own growth projections — taking private sector forecasts for the government's revenue, and lopping off $40 billion. When reporters asked if this was basically a way of cooking the books, Morneau disagreed, instead saying that private sector economists had been too optimistic and that the $40 billion was simply a "risk adjustment."