À la carte stimulus budget as Canadian Liberals seek to eclipse crisis

OTTAWA (Reuters) – With federal elections imminent and Prime Minister Justin Trudeau's government facing the worst political crisis in the past four years, the Liberals in power are expected to come up with a generous budget later this week to allow voters to resume thread.

Trudeau's Liberals came to power in 2015 promising to shake up the economy by increasing spending, but their popularity has fallen sharply in recent weeks as the former justice minister of Canada lobbied for the construction company SNC-Lavalin avoids a criminal trial.

In addition, economic growth has slowed sharply at the end of 2018 and, despite huge job gains, Canadians are feeling increasingly pessimistic about the future, as record household debt is facing higher interest rates.

To counter this negative sentiment, Finance Minister Bill Morneau is expected to use the exceptionally high revenues of the first nine months of the fiscal year to present a stimulative federal budget on Tuesday, the last budget preceding the October election. .

Supporting expectations for millennial homebuyers, money for skills upgrading, drug plan badistance for people without workplace prescription drug plans and new expenses for families with children.

If Morneau is to be fiscally prudent, the solution will be to divide only unplanned revenues and not to disrupt plans to reduce the net debt-to-GDP ratio, which makes it possible to measure the debt burden in relation to to the economy, said Derek. Holt, Scotiabank Financial Markets Economist.

"If they want their cake and eat it too, you only spend the unexpected surprise of the recipes and you keep your powder dry on the rest," he said.

MILLENNIUM HOUSING

The new mortgage rules that came into effect last year, as well as five interest rate increases by the Bank of Canada since July 2017, left potential buyers on the sidelines.

Although the central bank says the changes have improved the quality of Canada's new mortgage debt, they have also contributed to a slowdown, as home sales dropped across the country to their lowest level in six years in February.

"Our recommendations include 30-year mortgages for first-time buyers and the adaptation of the current stress test, now that the market has changed," said Kevin Lee, Executive Director of the Canadian Home Builders' Association. .

Other options include greater tax breaks for first time buyers and more space to borrow from retirement savings.

But economists warn that too many benefits could inadvertently warm housing markets, making property even more inaccessible for younger generations and new buyers, especially in expensive cities like Vancouver and Toronto.

PHARMACARE AND MORE

The budget is also expected to propose a limited expansion of the Canadian health care system to cover part of the cost of prescription drugs, Reuters reported in January, citing sources.

Budget documents can go into details, or simply make a general commitment to improve coverage, leaving details for the election campaign.

And if one of the weak points in Canada's sluggish economy is the high number of jobs, companies say they struggle to fill positions requiring specialized skills, particularly in the areas of technology and technology. the health.

"We would welcome a focus on skills as this could help address the current business challenge," Craig Wright, chief economist at the Royal Bank of Canada, said in a research note.

In a shoe repair shop on Thursday, Morneau suggested that such measures would be imminent.

"In our budget this year, that's what we're going to think about. How do we help Canadians stay away … and how do they pay for their training? ", Did he declare.

The Liberals have been criticized for giving up on their commitment to balance the budget by 2019, but with an impending vote, the focus will likely be on setting up the platform for election campaign. A deficit of Can $ 18.1 billion ($ 13.6 billion) is forecast for 2018-19.

"In terms of how the deficit is distributed, as we saw in the last election, voters still like to see a check in their own mailbox," said Avery Shenfeld, chief economist at CIBC Capital Markets, in a research note.