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Deficits and Unplanned Spending

December 30, 2015

During the election campaign, the Liberals promised new spending, but also promised that the deficit would not exceed $10 billion in each of the next two fiscal years.

However, since coming to power on November 4th, the new Liberal government has announced additional spending that exceeds the spending promised in their election platform by billions of dollars. This is concerning.

The Liberals underestimated the amount of revenue that their new federal income tax hike would generate. During the election they promised to raise the upper federal rate from 29 to 33 per cent on income about $200,000, but underestimated the revenue this would generate by about $1 billion.

They also underestimated the cost of cutting the middle income tax bracket. They projected it would cost $2.9 billion a year, but the Department of Finance now projects it will cost $500 million more – $3.4 billion.

The Liberals also promised that it would cost $250 million to take in 25,000 government sponsored refugees from Syria by year-end. Not only have they broken that promise by reducing the number to 15,000 and extending the deadline into the new year, they now admit the cost will be closer to $1.2 billion over 6 years – $877 million this fiscal year alone – not $250 million.

Just several weeks ago, the Prime Minister announced an additional $1 billion for the international UN climate change fund at the climate change conference in Paris. This spending had not been included in their election platform.

This is just a sample of the unplanned for spending announced since November 4th.

In addition, there is evidence that the economy has deteriorated since last April, when the previous government forecast a small surplus of $1.4 billion for the current fiscal year.  As a result, Finance Minister Bill Morneau recently indicated that revenues will come in lower than projected.

What does this all mean? It means that the new government is not making the difficult choices necessary to keep spending under control. It means that the deficit is likely going to be much higher than $10 billion. It also means that there will be pressure to raise federal taxes to pay for this new spending.  New programs and new spending also create the risk of a structural deficit, which is very difficult to eliminate, as the Province of Ontario is finding out.


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