The Morning Brief – 07.08.20

By Bruce Carson


Economy—Fiscal Snapshot—Not a Budget, Not an Economic Update. What will it Include—Forecast of Revenues and Spending—Deficit and Debt—Phasing out of COVID-19 Programs?

WE Charity Contract—How did this contract happen—Why is there no Trudeau Ethics Sniff Test?

Fiscal Snapshot

Shortly before 2pm Finance Minister Morneau is scheduled to rise in the House of Commons to present what many hope will be a comprehensive look at where the federal government is with regard to revenue and expenditures and where it sees itself financially six to twelve to twenty four months out.

In addition there are those, particularly in small business who want some certainty as to how long the CERB and wage support programs will last, how and when will they be phased out and will the CERB be replaced by a new program or melded into existing Employment Insurance so that those who continue to fall through the cracks through no fault of their own will see financial support until the economy is fully opened up?

The above is what many would like to see; but presumably Morneau will be intentionally vague on some of these matters, claiming uncertainty. As Heather Scoffield writing in the Star put it, Morneau has a “very fine line” to walk between assuring business that the expensive supports are being phased out and not wanting to leave Canadians still hurting from the financial impact of the pandemic without support.

No doubt the minister will begin by congratulating himself on being able to see Canadians through the pandemic. He will talk about how well placed the government was going into COVID-19, with a strong balance sheet and low debt to GDP ratio.

This fiscal prudence, he will argue put Canada in a position where the government could afford to absorb the financial shock caused by closing down the economy in order to fight the virus and flatten the curve.

He might even venture back to 2008 -09 to make the point that the crisis of 2020 is much more complex and difficult to deal with than the one of just over ten years ago. In some ways he may be right as 2020 featured a health crisis that required the whole economy to be shut down while 2008 was a financial crisis that could be addressed by fiscal stimulus.

What he won’t say is that the books were balanced in 2015 when the Liberals assumed government but the books may not be balanced for many years after the spending of the last five months.

While few would argue that the spending was not necessary, but as the economy opens, it is time to remove at least some of the government supports.

Prior to today the Conservative Party and NDP set out what they would like to see addressed in the snapshot.

Not unsurprisingly the Conservatives want to see a plan which gets spending under control on the grounds that business, employers need certainty. When will support measures be phased out?

The NDP are concerned that cuts could come too early and leave Canadians who through no fault of their own are without income. The NDP argues that pandemic spending could be easily managed if the government would only crack down on those companies not paying taxes because they are utilizing tax havens.

Specifically, the NDP would like to see the wage subsidy program made more flexible so that it may be accessed by small businesses. They would also like to see support increased for Canadians living with disabilities. No doubt their demand of two weeks paid sick leave will surface today.

The finance minister should also take into consideration the conclusions of the Bank of Canada’s Business Outlook which termed the future as “strongly negative” but still better that what they experienced in the 2008-09 financial crisis.

The “strongly negative” view can be attributed both to covid-19 and the drop in oil prices. Respondents to the Bank’s survey see softer sales across all regions and sectors. There is also a “high degree of uncertainty about consumer behavior and future demand.” Important for those dealing with policy as it affects workers, the respondents hiring plans were described as “muted” with one quarter of companies planning to refill some positions.

The Bank’s survey of 100 companies was carried out during the period May 12-June 5.

Jack Mintz of the University of Calgary’s School of Public Policy commenting on what to expect today said “Ottawa should show us its own recovery plan.” Doug Porter of BMO stated “Ottawa should aim to bring down the deficit only insofar as it doesn’t threaten the fledgling recovery.”

Last evening on Power and Politics three economists, Kevin Page and Mostafa Askari of the Institute for Fiscal Studies and Democracy and Rebekah Young of Scotiabank  set out their wish lists for today’s Snapshot.

Kevin Page hopes to see the Snapshot include not only what the fiscal situation is today but what it will look like in 2021-22. How will fiscal policy support the opening of the economy? Also business confidence needs to be restored so that investments can flow. Page would like to see a fiscal planning meeting which would include the federal government, premiers, cities and Indigenous leaders to discuss next steps and how working together fiscal issues may be addressed.

Mostafa Askari would like to see the government’s planning assumptions as a second wave of COVID-19 is anticipated. He would also like to see the provinces get help from the federal government, more than the $14 billion presently being discussed. He would also like to see a two year fiscal plan.

Rebekah Young believes we will see a deficit around $300 billion which is more than the Parliamentary Budget Officer had forecast, and whether CERB will be extended, in what form and for how long. She noted that unemployment will be around 10% this year and 8% next year so supports can’t be entirely withdrawn. The federal government should also be looking at fiscal stabilization programs to help the oil producing provinces.

Some of the answers to the questions posed may appear this afternoon. Unfortunately, the detail that most want to see won’t be produced.

WE Charity and the Canada Student Service Grant Program

As a result of House of Commons Committee meetings held yesterday it looks like many of the questions raised by Rex Murphy in his latest column entitled “Just because Trudeau and the Kielburgers want to walk away from the mess they created does not mean they should be allowed to” may be answered.

Murphy wanted to know the factual basis for Trudeau’s claim that the WE Charity was the “only organization” that could handle the requirements of the Service Grant program?

Where did the idea come from and where are the back-up memos?

Who decided to cancel the arrangement and why?

These are just a few of the questions he raises and they might receive answers in committee hearings to be held, presumably this month and from documents to be produced at the beginning of August.

What we won’t get answers to are questions of conflict of interest which have plagued Trudeau and his government virtually from the time it was sworn in.

Where are the PMO sniffer dogs who are supposed to sound the alarm when the prime minister veers close to an ethical line? In fact where is the prime minister’s ability to carry out his own smell test? Surely there were lessons to be learned from previous ethical lapses.

To Come

  • Fiscal snapshot to be presented by Finance Minister Morneau
  • USMCA meeting in Washington
July 10
  • Job numbers for June to be released
July 15
  • Bank of Canada deals with interest rates and releases its Monetary Policy Report