The Morning Brief – 11.26.20

By Bruce Carson


Prime Minister Trudeau’s ‘To Do’ List (Part 3)

Domestic Affairs—Economy—Fall Economic Update

Will it be more than an Update, almost a Budget?

Deputy Prime Minister and Finance Minister has a lot at Stake

Before delving into the numbers and what may be in next Monday’s economic update, it is worth looking at what the government and more particularly, Minister Freeland want to accomplish with this update. What are Freeland’s goals?

She took over the finance post from Bill Morneau at a time when there was obvious disagreement between Prime Minister Trudeau and Morneau as to the size and scope of ongoing pandemic relief policies, but also at a time in the middle of August when COVID-19 was declining in its forcefulness. It looked like there was clear sailing ahead to move on some of the “Build Back Better” ideas that both the prime minister and his new finance minister believe Canada needs.

Unfortunately by the time the Speech from the Throne was delivered in September, COVID-19 clouds had gathered again and instead of building a new economy, Minister Freeland was back dealing with much needed support for businesses and unemployed Canadians.

The promise of August had evaporated, perhaps only temporarily, with the coming reality presented in September.

As well, her appointment to Finance was not without some controversy. She had no doubt been one of Trudeau’s top performing ministers, known for hard work and being able to master complex files, but she was a commentator on financial issues, not someone with experience as a doer in the finance field. Her appointment might be compared to taking the colour commentator out of the press box to assume the quarterback role on the field. While this might work, would it work this time?

Arguably with next Monday’s update she has the opportunity to demonstrate that in these unique economic circumstances within which we live in the second wave of the COVID-19 pandemic, she is exactly the right person to take on the country’s finances, deal with the past, present and set out for the future.

Also since assuming the role of Deputy Prime Minister, Freeland has been relatively free from criticism and we can bet she will want to keep it that way as she presents her first major economic initiative, the government’s economic update.

Canada’s fiscal situation is not good. The federal deficit is approximately $425 billion and the accumulated deficit across the provinces is possibly more than $100 billion. Unemployment remains high and no doubt will increase as businesses, particularly small to medium sized ones are either struggling or closing. The commercial rent relief package, only available for application this week, was well overdue.

While the shutdown of parliament may have seemed like a good tactical move at the time, it has come at a cost to businesses and those moving off CERB, as the government has been slow to respond. And having shut down parliament, it must be most frustrating for the government that the WE Charity controversy still lingers.

As Freeland scans the horizon for matters that need attention, she will see airlines, tourism, accommodation, travel and the energy sector in line for help. Whatever the Large Employer Emergency Financing Facility (LEEFF) was supposed to accomplish for large businesses, the strictures around its application have been found to be too intrusive, not worth whatever gain would be forthcoming. Latest reports show only two companies have benefitted from this program. This needs her attention either in this update or in subsequent days.

Freeland will also need to use the update to clarify where the government will land on future spending. A couple of weeks ago, the prime minister told premiers that “federal resources are not infinite. We might have to choose between regions. We want to avoid having to make those tough choices.”

However, at every possible opportunity including last week in front of Rideau Cottage, he let Canadians know once again his government “has their backs” and “we are all in this together.”

Freeland has also said in response to questions about the limits to the government’s pandemic spending, that if you tell me how long the pandemic will last, then we will tell you when we will stop spending to support Canadians. But she has also said “our fiscally expansive approach to fighting the virus cannot and will not be infinite.”

Hopefully the update will bring some clarity to these seemingly contradictory statements, but it is hard to see that happening without a fiscal anchor being put in place, against which to measure and track future spending.

Near the end of October in a speech to the Canadian Chamber of Commerce, Prime Minister Trudeau said there would be “no immediate fiscal anchor” and his team would not be committing to a strict budgetary goal in the fiscal update. He added “we will certainly talk about the frame and responsibility that is necessary” but it is “premature to be locking things down.”

Former Parliamentary Budget Officer, now head of the Institute for Fiscal Studies and Democracy at the University of Ottawa, Kevin Page responded that “there’s a cost to having effectively no fixed plan” and “right now it is fair to say we have no fiscal strategy.” Page added “this is about where the government’s rudder is; where is the policy strategy that guides us through the pandemic, and post COVID-19 recovery? We’re missing that.”

In case Minister Freeland is interested, in a recent article in L. Ian MacDonald’s Policy Magazine, Page and Mostafa Askari set out a fiscal anchor which in the medium term would see federal debt to GDP ratios set in the 46% to 50% range. They also suggested ways by which this anchor could be held solidly in place.

Should Freeland decide, contrary to the statements made by the prime minister, that Monday’s document should contain a fiscal anchor, she and the government would gain much needed fiscal credibility.

The nuts and bolts of the update will be the numbers setting out what has been spent on COVID-19 support programs and a projection as to the amount required to be spent before Canada moves into recovery phase. The same question applies to the national debt.

The question is how much more detail will be contained in the update, keeping in mind it is not a budget? Will it set out spending or projected spending on child care spaces and a national pharmacare program? Will it reference some of the government’s green recovery projects from the Speech from the Throne such as resources for energy retrofits for houses and buildings?

Jordon Press of Canadian Press believes the update will set out the first steps on a federal childcare plan; funding for a new federal Childcare Secretariat. Federal money will be added through the safe restart program to help struggling childcare centers. More and better childcare helps to get more women into the workplace and there will be construction jobs as new centers are built.

CBC’s Chris Hall reports that the update will contain new, but time limited spending. His information is that there will be support for airlines, tourism, hospitality sector, restaurants and suppliers. There will be money specified for long term care homes. There will also be support for women to help with their return to work and money for infrastructure projects that will contribute to reducing GHGs. There may even be help for families with one time expenditures occasioned by school closures.

Will the update focus on what is needed to move from support to economic growth? Sean Speer in a recent article sets out that the phrase ‘Build Back Better’ should be reframed to “Grow Back Better.” Will it deal with the paid sick leave promise and provincial demands for more health care funding?

Finally, will the update contain revenue and spending projections over the medium to long term horizon? Will there be any attempt to rein in the deficit as Canada has the largest deficit in the G20?

Freeland in her speech introducing the economic update will refer to the government’s economic firepower, but given the present levels of spending, and what may be needed in the near term future, if that firepower still exists, hopefully some has been saved to respond to the second wave of COVID-19.

To Come

November 30
  • Fall economic update to be presented
  • Building permit numbers for October to be released
December 1
  • GDP numbers for September to be released
December 4
  • International trade numbers for October to be released
  • Job numbers for November to be released
December 9
  • The Bank of Canada deals with interest rates

The Morning Brief returns after the economic update on Wednesday, December 2.

– BC