WRAPUP 2-Canada's stimulus budget aims to revive oil-hit economy

(Adds Canadian dollar and opposition reaction; background on
Bank of Canada)
By Leah Schnurr
OTTAWA, March 22 (Reuters) - Canada's new Liberal government
on Tuesday unveiled a stimulus budget to revive growth with
infrastructure spending and said it would run a deficit nearly
three times larger than promised during last year's election.
The government said the budget was expected to raise growth
0.5 percent in the first year and 1.0 percent by the second
after the party of Prime Minister Justin Trudeau warned last
month an oil price plunge had weakened Canada's economic and
fiscal outlook.
The government projected a C$29.4 billion ($22.5 billion)
deficit for fiscal 2016-17, higher than the C$28.6 billion
forecast in a Reuters survey, and gave no target date for
returning to a balanced budget.
Economists said the stimulus package lowered chances the
Bank of Canada will need to cut interest rates again in April.
Trudeau has pledged to break with Group of Seven peers by
countering slow growth with fiscal stimulus rather than
austerity. Finance Minister Bill Morneau said the government
would spend C$3.97 billion on infrastructure projects in the
coming fiscal year, ramping that up to C$7.32 billion the
following year.
Infrastructure spending, a major plank of the Liberal
campaign, will include upgrading public transit.
"We are seizing the opportunity to invest in people and the
economy, and to prepare Canada for a brighter future," Morneau
said in his budget speech.
But Rona Ambrose, interim leader of the official opposition
Conservative Party, said from a taxpayer's point of view the
budget was "a nightmare scenario" given the lack of specifics on
returning to balanced accounts.
The Canadian dollar was little changed immediately after the
budget's release. CAD/
The budget, as expected, broke several pledges the Liberals
made before the election, including running just three years of
deficits of up to C$10 billion before balancing the books by
fiscal 2019-20.
Because the Liberals command a majority in the Canadian
Parliament's House of Commons, the budget is guaranteed to pass.
The budget forecast the deficit would decrease slightly to
C$29.0 billion in 2017-18. But there was no specific forecast
for a return to a balanced budget, with the budget still
expected to show a deficit of C$14.3 billion in 2020-21.
There was also a C$6 billion adjustment for risk included
in each year's deficit figures.
The finance minister told reporters that if the stimulus
generated growth at the top range of forecasts, the Liberals
should be able to balance the books in five years.
"There is a pretty good chance if the economy performs as
expected that the deficit numbers could actually track lower
through the forecast horizon," said Robert Kavcic, economist at
BMO Capital Markets.
The government said it would set a timeline for balancing
the budget when growth was forecast to remain on a sustainably
higher track.
"I'd like to have seen a zero in there at some point but
there's mention of it, so it's a step in the right direction,"
said Craig Wright, chief economist at Royal Bank of Canada.
The budget forecast federal debt as a percent of gross
domestic product would rise to 32.5 percent in the coming fiscal
year from this year's 31.2 percent. It will not get below its
2015-16 level until it hits 30.9 percent in 2020-21.
Markets widely expect the Bank of Canada to stay on hold at
its April meeting, when the bank will incorporate the budget
into its economic forecasts. The bank cut rates twice last year.