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March 23, 2017FEDERAL BUDGET 2017-18 Canada's Federal government has released its 2017-18 Budget. The Federal government now forecasts a $23 billion deficit for 2016-17, an improvement largely based on stronger than anticipated revenues as well as other comprehensive income of $2 billion. The Federal government anticipates that its shortfall will rise to $28.5 billion in 2017-18. Through the remainder of the fiscal horizon, the deficit is now projected to narrow, but not achieve balance within the next 5 fiscal years. The deficit is projected to be $18.8 billion by 2021-22. The Federal Budget has returned to the practice of making an adjustment for risk. Unlike previous practice, which reduced the outlook for nominal GDP, the Federal Budget now makes an explicit provision of $3 billion per year to guard against adverse fiscal shocks from forecast risks and economic events.
Compared with the fiscal outlook presented in last year's Budget (and updated in the fall), there are only minor changes to the fiscal plan, primarily because of changing pace of revenue growth. The improvement in the outlook for the deficit results from a different level of risk adjustment compared with that reported in the 2016-17 Budget.
The Federal government's fiscal plan assumes revenue growth that is very consistent with the average pace of nominal GDP growth. As a result, Federal revenues are projected to remain stable around 14.4 to 14.5 per cent of GDP over the next five years. Revenues are assumed to grow by 4.3 per cent in 2017-18 and by an average 4.0 per cent per year thereafter. At the same time, spending growth is projected to be slower than nominal GDP growth and the footprint of Federal expenditures in the economic will edge down from 15.7 per cent of GDP in 2017-18 to 15.2 per cent of GDP by 2021-22. Federal expenditure growth is projected at 4.8 per cent in 2017-18, but it slows to an average pace of 3.0 per cent per year thereafter.
The Federal Budget economic outlook is somewhat slower than the projections made in last year's Budget. Real GDP growth is now projected to be 1.9 per cent in 2017 and 2.0 per cent in 2018. Nominal GDP is expected to increase by 4.1 per cent in 2017 and by 4.0 per cent in 2018. In the near term, household consumer spending is projected to continue steady growth, but residential housing investment is assumed to reach a plateau as measures taken to cool large urban housing markets start to have an impact. Recovering oil prices (rising from $54 in 2017 to $64 in 2018) are expected to lead recovery in oil-producing regions, lifting investment levels. At the same time, production increases will help to lift export levels, at the same time as non-energy sectors continue to find their footing under a lower foreign exchange rate. Rising oil prices are expected to boost the foreign exchange rate from $0.745 USD/CAD in 2017 to $0.761 in 2018 and $0.817 by 2021.
Key Measures and Initiatives
Although there were few changes to overall spending and taxation, the 2017-18 Federal Budget identified a number of new priorities for program and policy development:
- Streamlined innovation funding, with an emphasis on six key areas: advanced manufacturing, clean technology, agri-food, health/bio sciences, digital technology and clean resources
- Greater use of challenge/competition funding for developing business-led 'superclusters' ($950 million over 5 years), innovative solutions to large policy problems ($383+ million over 11 years), procurement of innovative Canadian products ($50 million)
- Streamlined funding of $1.26 billion for sector development, including funds allocated to existing programs and tax credits.
- Consolidation of labour market programming into two funds ($2.7 billion over 6 years)
- Expanded options for maternity leave and skills training under employment insurance
- Ongoing funding of clean growth investments through bilateral agreements with provinces ($9.2 billion) as well as $5 billion through the Canada Infrastructure Bank
- Funding of $2 billion over 5 years for development of National Trade Corridors, plus an additional $5 billion for trade and transportation infrastructure funded through the Canada Infrastructure Bank.
- A commitment of $7 billion over 10 years for child care, including dedicated funds for indigenous communities on and off reserve
- Funding of $11.2 billion over 11 years for housing initiatives
Federal Budget 2017-18
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