(Bloomberg) — Canada’s finances are taking a bigger hit than projected from the oil-price slump, putting the country on pace for red ink even before Prime Minister Justin Trudeau kicks off his plan for deficit spending.
After a surplus of C$1.9 billion ($1.4 billion) in the last fiscal year, the latest finance department projections are for a C$3 billion deficit in the fiscal year that began in March, followed by deficits of C$3.9 billion in 2016, C$2.4 billion in 2017 and C$1.4 billion in 2018. Canada is on track to run surpluses in 2019 and 2020, according to figures released Friday by Finance Minister Bill Morneau in Ottawa.
The fiscal update includes more conservative revenue assumptions than in the previous government’s April budget to take into account growing risk to the outlook. The projections are also worse than those made by the Liberals in their platform for the Oct. 19 election, which included additional measures between 2016 and 2018 worth about C$25 billion.
Friday’s update — which doesn’t reflect any new measures – – suggests Trudeau will need to bring the country deeper into deficit than he had campaigned on, if the Liberals plan to move ahead with new stimulus spending aimed at kick-starting Canada’s stagnant economy.
The department’s figures suggest economic developments since April will result in an erosion of fiscal room of about C$6 billion annually over the next five years from what the previous government projected. The differing assumptions about revenue, though, inflate the gap between the last budget and Friday’s update by as much as C$3 billion.
Crude — one of Canada’s top exports — has slumped about 47 percent in the past year amid speculation a surplus will persist as the Organization of Petroleum Exporting Countries continues to pump above its quota. Benchmark contracts for West Texas Intermediate dipped below $40 a barrel on the New York Mercantile Exchange this week for the first time since August.
The finance department assumes an average price for WTI of $49 in 2015 and $54 in 2016.