JUSTIN TRUDEAU IS SET TO UNVEIL A VISION FOR POST-PANDEMIC RECOVERY THAT WILL DOUBLE AS THE LIBERALS' ELECTION PLATFORM, HEAVY ON NEW SPENDING AND ASSURANCES THE RISING DEBT IS AFFORDABLE.
Plan expected to double as election platform
Justin Trudeau is set to unveil a vision for Canada's post-pandemic recovery that will double as election platform, heavy on new spending and assurances the mounting debt is affordable.
The budget, the prime minister's first full fiscal plan since before COVID-19 hit, is an opportunity to lay out longer-term aspirations he'll be able to campaign on in a national vote that could see him regain his parliamentary majority.
Trudeau's government has signalled as much as $100 billion in additional money over the next three years for initiatives from childcare to green energy. Expectations are being set so high that an even more ambitious plan can't be ruled out. Finance Minister Chrystia Freeland has described the budget as “among the most significant of our lifetime.”
It's landing at a tense moment. The economy is healing faster than expected, but a recent surge in virus cases is forcing Ontario to impose the most stringent restrictions on movement yet. Delivery delays have plagued the nationwide vaccine effort.
“Monday's budget is full of firsts — the first federal budget in more than two years, the first federal budget for Chrystia Freeland, and the first federal budget for a female finance minister,” said Elliot Hughes, a former adviser to Freeland's predecessor who now works at Ottawa-based consultancy Summa Strategies.
“And if that didn't help raise the stakes, it comes as Canada is in the midst of the third and deadliest wave of the COVID-19 pandemic,” Hughes said.
The new spending will be on top of record levels of debt the nation is already taking on.
Canada will likely report a budget deficit of $363 billion, or 17 per cent of gross domestic product, in the fiscal year that ended March 31, according to the federal spending watchdog. Another $150 billion budget gap is projected this year, according to the average forecast from a Bloomberg survey of economists.
By the time all the money is out the door, Trudeau will probably have accumulated more debt than all 22 prime ministers who preceded him combined. But he's still betting Canadians are in the mood to think big.
Freeland, and others in government, constantly discuss vulnerabilities exposed by the pandemic. Recently, she said COVID-19 has opened up a “window of political opportunity” to tackle childcare.
Funding for health care, particularly at old-age homes, could be another focus. Freeland is under pressure to address competitiveness, the manufacturing supply chain and the digital economy. There will be more money for infrastructure, especially the type that can help reduce greenhouse gas emissions. Other Trudeau agenda items like pharmacare and housing could also be funded.
The government is also expected to extend the main income-support programs that help individuals and businesses still being hurt by the pandemic, such as wage subsidies and unemployment benefits.
With the economy faring far better than anyone expected, there will be pushback against the deficit spending — with the Conservatives warning against an “avalanche” of red ink.
Despite the pandemic's toll, the economy is poised to fully recoup last year's losses as early as this year. That means the government's narrative for the additional spending will need to go beyond kick-starting the expansion. Cabinet ministers have already begun to draw comparisons between their efforts and President Joe Biden's infrastructure plan, which aims to bolster longterm U.S. growth.
But politics may be the biggest reason ambitions are elevated. Trudeau's Liberals kept power but lost their parliamentary majority in 2019. Polls suggest they have a strong chance to win it back, which is why an election is expected soon.
There's a risk, however, that voters punish Trudeau if he's seen as being reckless.
Soaring spending forced the government to abandon its last budget rule at the start of the crisis. But Trudeau has formally instructed the finance minister to re-establish a “fiscal anchor” and avoid creating any new permanent spending.
One benefit from the stronger-than-expected recovery is an improving picture for tax revenue. Nominal output is now on track to be about $100 billion more this year than projected in the government's last fiscal update in November, which means about $15 billion more in annual revenue than forecast at the time. That windfall gives Freeland some cushion to spend.
Some are warning Canada needs to start considering new taxes to bring the budget back closer to balance. The C.D. Howe Institute is recommending Trudeau increase the national sales tax.
The prime minister has raised taxes incrementally during his five years in power. Early on, he increased the marginal income tax rate for top earners. In November, Freeland unveiled plans for new levies on global tech giants. The government has said it's considering a tax on foreigners who buy homes in Canada but leave them empty.
Beyond that, taxation may be a non-starter, for now. Trudeau has longed pledged not to boost taxes on middle-class Canadians, choosing instead to rely on debt to finance his agenda.