Trudeau’s Pre-Election Spending Cupboard Looks Increasingly Bare

(Bloomberg) -- Slower-than-expected Canadian economic growth has whittled Prime Minister Justin Trudeau’s room for any new fiscal measures down to zero, without a significant escalation of the deficit.

That’s the conclusion of analysts at National Bank of Canada, in a report that estimates the slowdown’s impact on the federal government’s finances.

The Canadian economy’s outlook has deteriorated since the government last updated its fiscal forecasts in November, on the back of the slump in oil prices. The Bank of Canada earlier this month, for example, cut its 2019 growth forecast to 1.7 percent, from 2.1 percent.

As a result, National Bank economists Warren Lovely and Taylor Schleich estimate a loss of about C$1.5 billion ($1.1 billion) in anticipated revenue this year, in a budget that already had very little room for additional spending after the governing Liberals unveiled corporate tax cuts worth C$14 billion over six years in November.

“There’s never a good time to suffer an economic downgrade, but it’s fair to say that recent downward adjustments to Canadian growth have come at an inopportune time for Justin Trudeau and a Liberal government busy formulating a pre-election budget,” the analysts said in the report.

The only way to get any significant room for new budget measures would be to reverse the government’s planned deficit-cutting trajectory -- which now sees deficits including risk cushions falling to C$11.4 billion by 2023, from C$19.8 billion this year.

“For a government trying to court voters and secure another four years mandate, there simply doesn’t look to be a whole lot of room for new measures” National Bank said in the report. “So don’t be holding your breath, waiting on a budget chock full of costly measures.”

©2019 Bloomberg L.P.