OTTAWA – With a federal election threatening and Prime Minister Justin Trudeau's government facing its worst political crisis of four years, Canada's ruling Liberals are expected to write a well-budgeted budget later this week to get back on track with voters.
Trudeau's Liberals gained momentum in 2015 with a pledge to push the economy by increasing spending, but their popularity has fallen sharply in recent weeks due to the demand that Canada's former Justice Minister be pressured to help the construction company SNC -Lavalin avoid a criminal case.
Increasingly, economic growth fell sharply at the end of 2018, and despite confusing job gains, Canadians are increasingly feeling pessimistic over the future as record household debt rises to higher interest rates.
To counter the negative feeling, Finance Minister Bill Morneau is expected to use unexpected strong revenues from the first nine months of the financial year to write a stimulus-filled federal budget on Tuesday, the last budget ahead of a October election.
High on the list of expectations is support for millennium buyers, money for graduates, pharmacists assistance to those who lack prescription drug plans through their workplace and new expenses for families with children.
If Morneau wants to look financially cautious, it is key to divide only the unexpected revenue and not interfere with plans to reduce the net amount to the GDP ratio – a measure of how heavy the debt is against the economy, said Derek Holt, chief for capital market economy at Scotiabank. "If they want their cake and eat it too, you only use the unexpected earnings surprise and you keep the powder dry on the rest," he said.
Homes for millennia
New mortgage rules, which entered into force last year and five interest rate increases from the Bank of Canada since July 2017, have left buyers on the sidelines.
While the central bank says the changes have improved the quality of the new mortgage debt in Canada, they have also contributed to a slowdown, with domestic sales falling nationwide to a six-year low in February.
"Our recommendations include the restoration of 30-year mortgage loans to first-time home buyers and make some adjustments to the current stress test now that the market has changed," said Kevin Lee, CEO of the Canadian Residential Association.
Other options include major tax breaks for first-time buyers and more room to borrow from pension savings.
But economists warn that too many perks can unintentionally reheat the housing markets, putting ownership beyond reach for millennia and other first-time buyers, especially in expensive cities such as Vancouver and Toronto.
Pharmacare and more
The budget is also expected to propose a limited extension of Canada's healthcare system to cover part of the cost of prescription drugs, Reuters reported in January, referring to sources.
Budget documents can go into detail or just make a general commitment to increase coverage and leave specification for the election campaign.
And while one of the bright places in Canada's sluggish economy has been increasing in number, companies say they are struggling to fill jobs that require specialized skills, especially in technology and health.
"We want to focus on skills as it could face a current business challenge," said Craig Wright, chief economist at the Royal Bank of Canada in a research note.
Speaking at a shoe store on Thursday, Morneau suggested that such measures would come.
"In our budget this year, that's what we need to think about. How do we help Canadians take days off … and how do they pay for their training?" He said.
The Liberals have been facing criticism for backing off a promise to balance the budget by 2019, but with the threat threatening, the focus is likely to be on setting up the campaign platform with the forthcoming things. A deficit of DKK 18.1 billion is expected. USD for 2018/19.
"When it comes to how the deficit is awarded as we saw in the last election, (voters) would still like to see a check in their own mailbox," says Avery Shenfeld, chief economist at CIBC Capital Markets, in a research note.