Bill Morneau planning cautious budget for March 22 as he waits on Trump

Bill Morneau's second budget will be short on new spending and will include what amounts to a "down payment on the innovation agenda," as the finance minister takes a wait-and-see approach over the uncertainty surrounding U.S. President Donald Trump's economic agenda.

A senior government source said this budget will set the stage for what could effectively be a two budget year, with a significant fall fiscal update that would be able to factor in the full implications of the coming U.S. budget.

Morneau announced in the House of Commons today that he will deliver his budget on March 22. The expectation was that it would be a so-called "innovation budget"  — outlining the beginnings of a plan to re-engineer the Canadian economy — but government officials have been keen to tamp down those expectations in recent weeks.

"We want to move forward on our agenda and continue to be ambitious in helping Canadians," Morneau said in the foyer of the House of Commons, adding that he is "confident" he can do that while remaining fiscally responsible.

"We know that the measures we put in place in Budget 2016 made a real difference for middle class Canadians, we can continue that going forward," he said.   

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Trump's promise of massive personal and corporate tax cuts, as well as a trillion dollars in infrastructure spending, is a key factor in this "prudent" approach, the government source said.

But finance officials are also worried about the downside risk presented by low Canadian economic growth and continued global economic uncertainty. There is also a distinct lack of fiscal room for new spending due to the government's earlier decision to enrich child benefit programs and spend big on infrastructure.

The budget will include new spending in some key areas of the innovation agenda — notably in skills development and training for workers, as well as talent recruitment.

But it will focus heavily on providing specifics on the billions in spending announced in the Trudeau government's first budget last year, rather than rolling out a large suite of new programs.

Budget 2017 to clarify budget 2016

One area that will be fleshed out will be the $800-million strategy to support what the government calls "innovation networks and clusters."

That money was supposed to be spent as $200 million a year over four years, but not a dime has gone out so far. Budget 2017 will detail how some of that money will be spent as well as providing greater specifics on the $186 billion in infrastructure spending the government has promised over the coming decade.

Morneau is taking this cautious tack despite better than expected growth numbers in the fourth quarter of last year and a number of other factors that are likely to have a positive impact on the economy.

For all of the uncertainty surrounding Trump, his economic plan is expected to jolt the U.S. economy — at least in the short term — and lift the Canadian economy with it.

Oil is now trading above $50 a barrel, compared to the low $30-range a year ago. If it can break through the $60 mark and stay there, Alberta could see a sharp turnaround in its economic fortunes and add billions to federal revenues.

But Morneau has opted to pace himself. And instead of delivering the definitive innovation budget that industry players were hoping for, a government official said there will be components of the innovation strategy sprinkled through each budget of this mandate.

Keeping promises

The Conservative finance critic said his party wants to see three things in the budget: no new taxes, no new actions that would impact seniors negatively and a plan to get the budget back into balance.

"We're asking the government to get spending under control again, we're asking the government not to touch tax credits or increase taxes on Canadians," he said.

Gérard Deltell said he also wants to see some measures that will help Canada remain competitive with whatever the Trump administration has planned for the economy south of the border.  

NDP leader Tom Mulcair said he wants to see the Liberals keep campaign promises to close loopholes that allow white-collar criminals and millionaires escape the harshest penalties for tax evasion, and to act on issues facing First Nations. 

Defence spending pushed to fall

The budget will also be short on spending in key areas, such as defence.

A government official said the recommendations from the defence policy review won't be ready in time for inclusion in the budget. Instead defence plans will be revealed later in the year — most likely in the fall update, which could grow into a de facto mini-budget.

One other outstanding issue the federal government is trying to finalize by budget day is the health accord deals the Liberals have yet to sign with four holdout provinces: Ontario, Quebec, Alberta and Manitoba, who have so far refused to sign on to the government's offer for additional targeted health funding.

The government official expressed optimism that deals could be reached with several of those provinces by budget day.