Canada's robust credit rating should calm unease about federal deficits: Trudeau

Prime Minister Justin Trudeau says Canadians worried about his government's deficits should look at the country's strong standing with international credit-rating agencies for reassurance.

Speaking to The Canadian Press in a wide-ranging interview, Trudeau said Canada's triple-A rating with agencies like Moody's Investors Service and Standard & Poor's should provide comfort to taxpayers who fear his government has been accumulating too much debt.

Trudeau insisted the long-running rating scores mean experts have confidence in his government's approach to the economy.

He made his argument as critics, and especially the Conservatives, warn Ottawa should be curbing deficit-spending in the stronger-than-expected economy.

Debate over Canada's books could turn into a key ballot-box issue in the leadup to next October's federal election and it could become particularly interesting if the Liberals are forced to navigate a downturn between now and then.

"This question around deficits, obviously, has been one that has led to a lot of conversations, a lot of attacks or critiques from our political opponents, the legitimate questions from journalists and, quite frankly, worries from Canadians," Trudeau said during roundtable interview last Friday.

"Who are the experts in terms of sustainability of a fiscal plan? I'd suggest that the international bond ratings agencies S&P, Moody's and those folks know what they're talking about ... The fact that the international ratings agencies are giving us a thumbs up right now should reassure people."

Choppy waters ahead

Asked about the next inevitable downturn or recession, Trudeau argued his government's moves to boost immigration and to make investments in areas like skills training, infrastructure and a lower-carbon economy have made Canada more resilient against future shocks.

He also credited his government's moves to enhance child benefits and lower income taxes for middle earners as confidence builders for households that will make Canada more resilient.

"These kinds of things are what are going to build a strong foundation for the Canadian economy regardless of the choppy waters that will come from time to time," he said.

The Trudeau Liberals were elected in 2015 on a pledge to run modest annual shortfalls of no more than $10 billion and to balance the books by 2019. Instead, they have posted yearly deficits almost double that size and no longer have a timetable to return to balance.

Debt to GDP ratio

After taking office, the Trudeau government shifted its focus to keeping the government's debt burden as measured by Ottawa's net debt-to-GDP ratio on a slight downward track.

Experts, however, have cautioned that the debt-to-GDP ratio will be thrown off course in a downturn, leaving Ottawa to search for another so-called "fiscal anchor."

For Trudeau, the debt-to-GDP is a "benchmark we're going to stick to."

He was also asked if the public should expect the next Liberal election platform to focus on debt-to-GDP rather than another promise to balance the books.

"We're certainly going to be making decisions about how to demonstrate our fiscal responsibility and nothing has been finally decided yet, but I think the debt as a share of GDP is a very handy and important way of measuring how sustainable a fiscal plan is," he said.

Canada has had a triple-A credit rating with Moody's since 2002 a time period that has spanned both Liberal and Conservative governments in Ottawa.

A report last month by the agency said the rating was due, in part, to "stable" debt ratios for all levels of government, which were supported by a low federal debt burden that's expected to gradually decrease over the next few years.

Last month, federal Finance Minister Bill Morneau's fall economic statement forecasted the debt-to-GDP ratio to gradually fall from 30.9 per cent in 2018-19 to 28.5 per cent in 2023-24.

Morneau also projected annual deficits of $18.1 billion in 2018-19, $19.6 billion in 2019-20 and $18.1 billion in 2020-21. After 2020-21, the annual shortfalls are expected to shrink each year to $11.4 billion in 2023-24.

Last week, Moody's announced a downgrade to the Ontario government's rating to Aa3 from Aa2. It cited the province's $14.5-billion deficit projection for 2018-19 and an outlook of more shortfalls in the coming years.