OTTAWA: Canada will run a budget surplus by 2045, the finance department projected on Friday, suggesting the Liberal government will run deficits well beyond the timeline it promised during its successful election campaign.

In its updated long-term fiscal projections, the government said it sees deficits until the fiscal year 2045-46, when it sees a surplus of C$10.9 billion ($8.5 billion).

The Finance Department cautioned that the long-term numbers should not to be interpreted as forecasts and are “subject to a fair degree of uncertainty.”

The government also sees the economy growing at an average annual rate of 2 per cent from 2017 to 2022 and 1.7 per cent over 2023 to 2035.

Running deficits in order to boost the weak economy was a significant part of Prime Minister Justin Trudeau’s election campaign in 2015.

At the time, Trudeau promised to run modest deficits over three years and to balance the books by fiscal 2019-20, but the most recent budget update forecasts deficits until 2022-23, the end of its forecast horizon.

In its October fiscal update, the government forecast a deficit of C$19.9 billion in the current 2017-18 fiscal year, smaller than it had previously anticipated.

Separately, the finance department said Canada’s budget deficit narrowed in October compared to the previous year as revenue from both personal and corporate taxes increased.

Revenue up

The government posted a deficit of C$349 million ($273 million) in October, compared to a deficit of C$1.53 billion in October 2016.

Revenue was up 4 per cent as the government took in more money from personal and corporate income taxes. At the same time, programme expenses declined 0.9 per cent as payments to unemployed workers fell.

For the fiscal year so far that began in April, the government ran a deficit of C$6.28 billion, down from a C$9.34 billion deficit in the same timeframe last year.

Meanwhile the Canadian economy paused in October, reinforcing expectations that growth cooled in the second half of the year and taking some steam out of bets that the central bank could raise interest rates as soon as January.

Gross domestic product was unchanged in October, Statistics Canada said on Friday, short of economists’ forecasts for a gain of 0.2 per cent following September’s unrevised 0.2 per cent increase.

The soft reading was driven by a decline in oil and gas extraction that offset gains in the wholesale trade and retail sectors. The report lowered market odds the Bank of Canada could raise interest rates next month, with the likelihood declining to 47 per cent from 50 per cent ahead of Friday’s figures. The Canadian dollar weakened against the greenback.

Growth in the second half of 2017 is expected to have cooled from the blistering pace set in the first half, though analysts expect the Bank of Canada to continue to tighten interest rates next year after improvements in the labour market and inflation.

“It’s a modest setback for the economy,” said Sal Guatieri, senior economist at BMO Capital Markets, who expects the central bank to hike next in March. Market odds on a March move were 80 per cent.

Last week, Bank of Canada Governor Stephen Poloz said the central bank is increasingly confident the economy will need less stimulus over time. Activity in goods-producing sectors of the economy declined by 0.4 per cent in October, led by a 1.1 per cent pullback in the mining and oil and gas extraction industry.

It was the fourth decline in the sector in five months as nonconventional oil extraction fell, partly due to a loss of capacity during maintenance. Mining also declined by 0.8 per cent.

Reuters