Finance Minister Bill Morneau's U.S. fact-finding trip sets table for March budget

Finance Minister Bill Morneau says he has enough information about the Trump administration's fiscal and tax priorities to comfortably table a budget in March that he had seemed poised to deliver in February.

"We have a sense of their priorities. That's going to be helpful for us as we move forward," Morneau said after his first meeting with U.S. Secretary of the Treasury Steven Mnuchin on Wednesday.

"With respect to our budget it will be very focused on how we can improve our economy in Canada and we have the information required to come forward with that budget."

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All signs now are that Morneau will come forward with that budget during the week of March 20 — even though there were clear signs the government was preparing for a budget in late February.

February rollout delayed

The government had tentatively booked rooms for the budget rollout and had surveyed private-sector economists in January for their views on the economy — something normally done in the weeks immediately preceding a budget.

Industry groups and other stakeholders were told to expect a late February budget date, but by the middle of last month some started receiving messages from government officials saying the budget had been delayed.

The speculation was that the uncertainty surrounding the full impact of the Trump economic plan led to the budget date being pushed back.

The U.S. president is promising deep personal and corporate income tax cuts as well as a $1-trillion public-private infrastructure program. If those measures go ahead, they could threaten Canada's competitiveness with the U.S. in the short term and, over time, drive inflation and interest rate increases.

Health talks part of delay

But senior government officials downplay that notion, with one stating emphatically the Morneau budget "would not be a reaction to Trump." Instead, multiple officials point to the uneven progress on health talks with the provinces as a reason for the March budget date.

At this point, four provinces — Ontario, Quebec, Manitoba and Alberta — have not signed a health accord with the federal government. There is a desire at the federal level to have agreements with as many provinces as possible by budget day.

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The expectation has also been that Morneau's second budget would be an innovation budget, but a senior government official cautioned that "may be overstated." There will still be a focus on innovation that will draw heavily from the recommendations of the federal advisory council on economic growth led by Canadian consultant Dominic Barton. But there are questions as to how ambitious those measures can be.

The reality is the government doesn't have as much fiscal room to manoeuvre as it would like. The government has already made big spending commitments on infrastructure and an enhanced child benefit program.

But a weaker than expected economy means revenues are down and the deficit is already 250 per cent larger than the Liberals promised during the election.

Deficit politics a concern

The Liberals were also stung by the narrative that took hold after the November fiscal update — that the government had no clear plan to return to a balanced budget. That narrative was only reinforced by a finance department report — released just before Christmas — that showed Canada may not return to balance for decades.

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The government was also criticized for eliminating any contingency measures from its fiscal plan in that November update. Putting a contingency reserve back into the fiscal plan in this budget would either increase an already growing deficit or further limit spending room.

One federal source said a key goal in this budget is to demonstrate to Canadians how they benefit from all of that debt and borrowing.

While the child benefit changes and infrastructure spending got a lot of attention last year, there is a sense in the Finance Department that other measures — such as increased grants for post-secondary students and a break on student loan repayments for graduates — failed to get much traction with the public.

The challenge will be to make that connection to Canadians while living within the fiscal constraints created by the sluggish economy and the Liberals' own spending.