The Morning Brief – 09.22.20

By Bruce Carson


The Path to the Speech from the Throne (SFT) –Part 3

How Much Spending is too Much?

A Fiscal Anchor is Needed

For the first four days of last week, the think tank Canada 2020 and the Institute for Fiscal Studies and Democracy located at the University of Ottawa combined with other similar organizations gathering together thinkers and doers from numerous jurisdictions at the virtual Recovery Summit.  This is the most recent part of the Recovery Project initiated by Canada 2020 shortly after the COVID-19 shut down came into effect.

The last day of the Summit was designed to bring together ideas and recommendations from the first three days to ensure action would be taken on a number of ideas presented.

The first three days dealt with a number of topics or issues which should be familiar to Canadians who have suffered through the pandemic and also to those searching for solutions to address what now seems to be the inevitable second wave.

The matters canvassed by speakers and panels dealt with “Shared Prosperity” or put another way, developing an inclusive society. “Democracy and Our Institutions” were discussed as they seem threatened by what we have experienced since January.

One of the topics included under the heading “Sustainability” was the need to involve young people directly in addressing and combatting climate change. “The Challenge Ahead” was divided into two parts: shaping a progressive recovery and global public health.

While the topics were broad, the issues identified within them were not and were similar to ones Canadians have been discussing since the shutdown of the economy in the middle of March. This leads into a discussion of priorities that may be set out in the SFT and the financial resources that need to be committed to effect change. Change that will address problems or challenges raised during the pandemic.

There will need to be investment in jobs, health care, environment and income equality. One presenter from the United States pointed out, and it would seem to apply to a certain extent to Canada, that with the pandemic, one knew that the United States would suffer more because of inequality; inequality resulting in vulnerability.

Income inequality and reform of our institutions need to be addressed so workers can see institutions that speak on their behalf and to their needs.

Also the issue of long term care for the elderly needs to be added to the list of ‘musts’ that need to be dealt with and solved.

Virtually all of the matters listed above, raised at the Summit, have been the subject of scrutiny in the lead up to the SFT. One thing they have in common is that the fix, costs money if they are to be addressed. This will add to Canada’s record deficit and debt already accumulated.

Last Friday during a Webinar sponsored by Government Analytics, moderated by Senator Pamela Wallin with David Dodge and Jack Mintz as discussants, they started off noting that  without including the yet to be introduced Canada Recovery Benefit, the deficit is at a record $343 billion and debt at $1.2 trillion. Lost revenues during the shutdown so far, amount to $81.3 billion.

Possibly the biggest understatement of the day, came from David Dodge saying “these are big numbers.” Yes, they may be big, but if the government is going to address the holes in Canada’s economic, social and health care safety net more money will need to be committed.

Mintz took the numbers to a new level adding provincial and federal deficits together and coming to $500 billion or 25% of GDP.  Mintz did say that Canada’s numbers were not as bad as those of the United States and Japan.

Perhaps another way of looking at how much fiscal room is available for new initiatives such as economic support for persons and businesses, health care and the social safety net would be to put in place a fiscal anchor and abide by it.

Don Drummond, formerly of the federal finance department, now at Queen’s was quoted by Kevin Carmichael calling on the prime minister to establish a fiscal anchor to keep debt from running to levels that would test the confidence of international investors.

David Dodge offered “it cannot be overstated that control of debt servicing costs is essential for maintaining social and economic programs and keeping the tax burden on the middle class at reasonable levels.” Dodge added that we can’t assume that government can borrow cheaply forever. He argues that tapering deficits to 1% of GDP over the next few years and then lash fiscal policy to a rock that that could keep debt servicing costs below 10% of GDP.

Former Finance Minister John Manley was quoted by Carmichael as saying we need a “clear fiscal anchor.” In another article Manley commenting on keeping the deficit at $350 billion said “I think that would result in unhappy outcomes over time.”

He added that “the role of government is to try to give Canadians confidence so don’t be sloppy about how you support people.” Without a fiscal anchor it will be very difficult to maintain the confidence of investors.

Former Finance Minister Ralph Goodale was quoted in the St. Catharines Standard as saying that certain tests should be applied when contemplating new spending. The tests are: is it necessary; will it be effective; will it be fair; and will it contribute more to growth than it will to debt?  Goodale used spending on childcare as a perfect example of spending satisfies all of his criteria.

Tomorrow, the SFT will outline the broad policy strokes that the Trudeau government will be proposing. The measures that attempt to mend the social, health and economic safety net and emphasize growth and job creation are necessary. Those proposing such policies should know the costs and how they will fit within a fiscal anchor.

For those details we will be waiting for the fall economic update but tomorrow should provide a comprehensive list of priorities, if not the costs of implementation. It would be a positive step for the government to at least discuss Canada’s fiscal situation in the SFT and set out possible anchors, but that amount of transparency is doubtful.

Tomorrow, The Morning Brief will take a final look at what may be in the SFT.

To Come

Today & Tomorrow
  • The Supreme Court of Canada will hear the carbon tax appeals from Ontario, Saskatchewan and Alberta
September 23
  • Speech from the Throne
September 29
  • First presidential debate
September 30
  • GDP numbers for July to be released