| OTTAWA, March 20
OTTAWA, March 20 Canada's finance minister will
give an update on the deficit when he presents the federal
budget on Wednesday, hoping to flesh out plans to spend the way
to growth without drawing the wrath of debt-rating agencies and
businesses struggling to compete.
Analysts say key questions about debt and potential tax
increases remain, although the annual fiscal blueprint is not
expected to have the news splash of last year, when the new
Liberal government unveiled a stimulus budget centered on
infrastructure spending and much bigger deficits than it
If the ratio of debt to gross domestic product gets too high
under Prime Minister Justin Trudeau and Finance Minister Bill
Morneau, Canada could lose its AAA credit rating, although the
nation remains on stronger fiscal footing than most of its
Rising bond yields will also boost the cost of servicing
Canada's debt, projected to rise to C$642 billion ($480.36
billion) this year.
Tax increases are a big unknown. Businesses fear higher
capital gains taxes would harm competitiveness just as U.S.
rivals benefit from a break in taxes and regulation under U.S.
President Donald Trump.
"The issue of competitiveness has become more urgent
following the U.S. election ... so I will be looking for
concrete plans to bring more business to Canada and keep
Canadian business at home," said Manulife Asset Management
senior economist Frances Donald.
Recent signs of long-awaited strengthening of economic
growth probably came too late to help Morneau trim yawning
annual deficits but could give him more room to reinstate a
fiscal cushion, or prudence fund, spent last fall to help trim
the budget gap to C$25.1 billion this year.
Morneau has not said when the government hopes to return the
budget, balanced under the previous Conservative government, to
the black. Instead he has pointed to a projected narrowing of
the debt-to-GDP ratio to just over 30 percent by 2022 as
investment in infrastructure, innovation and job training boosts
Uncertainty about trade policy of the United States,
Canada's largest export market, has increased speculation that
Morneau might delay some policy changes until the fall fiscal
update, when the impact of Trump's policies are clearer.
"The tone seems to be that a lot of policymakers here are
waiting to see what happens with fiscal policy south of the
border before they make any major decisions," said BMO Capital
Markets senior economist Robert Kavcic.
($1 = 1.3365 Canadian dollars)
(Additional reporting by Leah Schnurr; Editing by Lisa Von Ahn)