By David Ljunggren
OTTAWA, Feb 23 (Reuters) - Canada's ruling Liberals will cap
the coming year's budget deficit at C$30 billion ($21.81
billion)- three times larger than originally pledged - as they
try to stick to long-term budget plans, according to senior
government sources.
Four insiders, who spoke on condition of anonymity because
of the sensitivity of the topic, said a 2016-17 deficit of C$30
billion, or about 1.5 percent of GDP, is the most Prime Minister
Justin Trudeau's team will tolerate given its longer-term goal
of lowering the country's debt-to-gross domestic product ratio,
now about 31 percent.
"The maximum deficit we can run and keep the ratio falling
is around C$30 billion and that is the absolute upper limit,"
said a top Liberal with knowledge of Trudeau's thinking.
A pledge to break with austerity by running annual deficits
of C$10 billion helped Trudeau defeat the Conservatives in last
year's election.
But since then, weak oil prices have sapped economic growth
and tax revenue. Finance Minister Bill Morneau said on Monday
the 2016-17 budget gap would be C$18.4 billion even before
promised stimulus measures that economists see adding C$10
billion to $12 billion.
"If you're going to go big, you go big at the beginning, and
then start tapering back," said another government official.
The Liberals will release the federal budget on March 22.
Liberal legislators and officials said the dire state of the
economy meant there was little open dissent inside the caucus
about running a deficit much larger than the party campaigned
on.
That said, some on the right wing of the party - who
remember the days when the Liberals were lauded for surpluses -
privately admit to some nervousness.
"Is it of concern? Of course it is. Will it derail us from
our agenda? We may have to swallow hard on that - we may end up
having to postpone a few things because you can't just go with
runaway deficits," said a veteran Liberal.
Deficit spending is a change for the current generation of
Liberals, who when in power from 1993 to 2006 took pride in
eliminating a large shortfall inherited from the Conservatives.
The deficit started to spiral in Canada between 1968 to
1984, a period when Trudeau's father Pierre was prime minister
for all but nine months and ramped up public spending.
The debt-to-GDP ratio was just over 20 percent when he took
power and by the 1984/85 fiscal year it was more than 40
percent, according to Finance Ministry data. It hit a peak of
just under 70 percent in 1995/96.
The next election is not scheduled until October 2019. But
the Liberals - slammed as spendthrifts by the opposition
Conservatives on Monday - will have to convince voters well
before then that they are in control, said party insiders.
Trudeau will have no difficulty implementing his agenda for
now given his Parliamentary majority and an unusually long
post-election honeymoon.
On Tuesday, a Nanos Research poll on who would make the best
prime minister put Trudeau 36.5 percentage points above his
closest rival.
($1 = 1.3758 Canadian dollars)
(Editing by Jeffrey Hodgson and Alan Crosby)