Finance Minister Bill Morneau will deliver his government’s third budget on Feb. 27.
He announced the date during question period in the House of Commons on Tuesday.
“We’ve seen real improvements over the last couple of years for middle class Canadians, more confidence and among the lowest unemployment rates in the last 40 years, but there’s more work to do,” Morneau told the House.
Despite Morneau’s words of glowing optimism, dark clouds hang over Canada’s most important trade pact.
The seventh round of the North American Free Trade Agreement renegotiation talks kick off in Mexico City the same week the budget is tabled.
On Tuesday, Canada’s chief NAFTA negotiator Steve Verheul said the talks between Canadian, American and Mexican negotiating teams have made limited progress to date.
The three NAFTA partners have differing opinions on key aspects of the deal, including the rules for the auto sector, the idea of adding a sunset clause and proposed changes to the investor-state dispute resolution mechanism.
On Monday, U.S. President Donald Trump openly complained about Canada’s trade practices, although it’s not clear what exactly he was talking about.
“Canada does not treat us right in terms of the farming and the crossing the borders,” Trump said. “We cannot continue to be taken advantage of by other countries.”
Morneau said Canada’s robust economic performance “puts us in a strong position to negotiate” with the U.S.
“There will always be days that are challenging,” he said.
The future of NAFTA isn’t the only economic threat that could upset Morneau’s plans.
NAFTA, U.S. tax cuts could ‘chill’ investment
Economists warn that the minister must take into account the United States’ recent move to slash corporate taxes, which — in combination with the uncertainty over NAFTA — could put a “chill” on the business investment climate in Canada, said BMO chief economist Doug Porter.
“That’s a tough twosome to deal with,” Porter said.
Morneau is scheduled to sit down Friday in Toronto with leading economists at a roundtable that typically includes about a dozen experts from commercial banks, think tanks and trade associations.
Some economists say that late-2017 improvements in the economy likely will give Morneau more fiscal elbow room in the budget, compared to his October update. Others are less optimistic about the changes in recent months and expect the government to find itself in a similar budgetary position.
Last month, the Bank of Canada highlighted the widening negative impacts of NAFTA’s uncertain future. The central bank estimated trade uncertainty would lower investment by two per cent by the end of 2019. It said new foreign direct investment into Canada had tumbled since mid-2016 — a possible consequence of the unknowns around trade.
The bank also warned that lower corporate taxes in the U.S. could encourage firms to redirect some of their business investments south of the border.
Business associations fear the U.S. tax changes could end up inflicting more damage on the Canadian economy than the possible termination of NAFTA.
Morneau’s office has responded to the concerns by arguing that Canada has advantages such as an educated workforce and still boasts a competitive tax rate among G7 countries, even after the U.S. reforms. Ottawa is carefully assessing the U.S. tax changes and will take time to fully understand their potential impacts, his office said in a recent statement.
Following the 2015 election, the Liberal government abandoned pledges to run annual deficits of no more than $10 billion and to balance the books in four years. Instead, it is focused on reducing the net debt-to-GDP ratio — also known as the debt burden — each year.