Federal budget: Broken promises place Ottawa in a delicate situation

MONTREAL, Feb. 23, 2018 /CNW Telbec/ - The current federal government has systematically broken its fiscal promises since taking office, and the Finance Minister will have to proceed with caution, show the figures compiled by the MEI in the lead-up to the unveiling of the federal budget on Tuesday.

"Ottawa no longer has room to manoeuvre and now has to create some in order to be able to react to the economic situation. Since the government has not respected its commitments, the Finance Minister finds himself in a delicate position due to the substantial increases in spending and deficits," explains Mathieu Bédard, Economist at the MEI.

"Not only have none of the targets been hit so far, but even if the deficits were to be smaller than what was announced in the fall economic update, we will be far from all of these objectives," points out Mathieu Bédard. "Indeed, the government projects that public debt charges will be rising steadily over the next few years."

Moreover, several factors will be a drag on the Canadian economy in the months and years to come. For instance, there is the U.S. tax reform, which reduced the corporate tax rate from 35% to 21% and which is a direct threat to Canada's competitiveness.

"The negotiations surrounding NAFTA?which are creating a lot of uncertainty?as well as the American tax reform could really hurt the Canadian economy. Already, companies are redirecting a portion of their investment south of the border. We are less and less competitive with the United States," explains Mathieu Bédard.

"Given the current context, with several risks hanging over the Canadian economy, the Finance Minister has to be very careful. It would be irresponsible to announce new spending. Instead, he should address the deficit and make respecting his commitments a priority, in addition to taking immediate action to ensure the competitiveness of our tax system," argues Michel Kelly-Gagnon, President and CEO of the MEI.

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The Montreal Economic Institute is an independent, non-partisan, not-for-profit research and educational organization. Through its studies and its conferences, the MEI stimulates debate on public policies in Quebec and across Canada by proposing wealth-creating reforms based on market mechanisms.

SOURCE Montreal Economic Institute