IS TIMING RIGHT FOR A GREEN RECOVERY?

LIBERALS VOW TO HIT `SWEET SPOT' BUT ENERGY SECTOR FEARS BEING LEFT OUT

Canada's Natural Resources Minister Seamus O'Regan is a fan of the movie Fight Club and is living by at least one of its rules right now.

“Throne Speeches are like Fight Club. It's not something I could speak about even if I was privy to it,” O'Regan said in an interview with the Financial Post on Friday, alluding to the movie's famous first rule of being highly secretive about the club's existence.

It may be a fitting reference, at least in the sense that many industries and lobby groups are fighting over the billions of dollars that are expected to be rolled out to restart the virus-hit economy.

Prime Minister Justin Trudeau's Liberal government is set to deliver a highly-anticipated Throne Speech next Wednesday that's expected to focus on three main priorities including measures to protect Canadians' health, economic support for people as the pandemic continues and longer-term measures to rebuild the economy. The last priority is expected to include a focus on green spending following reports of a rift on the issue between Trudeau and former finance minister Bill Morneau, who quit over the summer.

A report earlier this week by an independent task force recommended investing $55-billion on climate and clean energy as part of a five-year environmental economic plan. The report may have more clout than some of the others that are floating around in the run up to the speech, as Gerald Butts, a long-time Trudeau confidante and his principal secretary until February 2019, was one of the 14 task force members.

Some industry executives are concerned that while green spending may have long-term benefits, it misses the country's short-term needs brought about by the coronavirus pandemic, including getting people back to work. There are also concerns that spending on green technologies will exclude energy and natural resource-focused parts of the country, though O'Regan tried to soothe those concerns.

Women and youth have suffered more than men during the recession, but that doesn’t mean our approach to redistribution is fundamentally flawed. Tiff Macklem, the Bank of Canada governor, in highlighting the unequal nature of the recession, also noted that the country “has done a better job than many advanced economies in promoting growth that is shared” over the past four decades.

Canada’s level of income inequality is average for the three dozen rich countries that make up the Organisation for Economic Co-operation and Development, and the gap between the richest and the rest has narrowed since 2006, while it has continued to widen in the United States and elsewhere.

America’s biggest problems aren’t our biggest problems.

Unfortunately, the Canadian right is no better at coming up with its own ideas about post-COVID policy than the Canadian left. The “Canada First” mantra that Opposition leader Erin O’Toole has been testing recently is also a bad fit for the country he wants to run. The world’s largest economy and dominant military power might be able to get away with such a posture, but for a smallish country such as Canada, it’s like actively choosing to be malnourished.

The COVID-19 crisis exposed important weaknesses in the world’s supply chains; however, that doesn’t mean the fix lies in Sir John A. Macdonald’s National Policy. The answer to the concentration of production in China is establishing a greater array of sources, not favouring unproductive domestic factories. And the response to the bully tactics of the U.S. needn’t be endless tit-for-tat trade wars, but instead could be one focused on empowering competitive companies that use Canada’s relative openness to trade and immigration to their advantage.

We don’t know yet what Trudeau means by “ambitious” and “responsible.” The throne speech on Sept. 23 should provide an outline. If Parliament endorses it, details will probably follow in the government’s first budget since the onset of the pandemic. If Trudeau fails to win the backing of enough opposition MPs, then his vision will come by way of a fall election platform.

A “responsible” recovery plan would acknowledge that most Canadians are uneasy with the Bank of Canada financing a significant portion of the federal government’s debt indefinitely. That means setting a clear limit for how much Ottawa is willing to borrow. The anchor needn’t be a balanced budget, which is more of an ideological target than an economic one. Still, broad-based confidence matters, so Trudeau needs to draw a line reasonable people will accept.

“Ambitious” is a word that has been missing from policy discussion in Ottawa for too long. The result is an unproductive, uncompetitive economy that has grown too reliant on debt-fuelled metropolitan housing bubbles to generate growth. As David Dodge, the former Bank of Canada governor, vividly showed in a report published this week by the Public Policy Forum, Canadian companies don’t invest enough in intellectual property and innovation, while a chronic current-account deficit shows that international investors no longer see Canada as a winner.

Canada’s biggest issues aren’t social, they’re economic, but it might be possible to attack both with one policy in the short term. Bank of Nova Scotia economists Jean-François Perrault and Rebekah Young this week proposed enlarging the “marginal benefit to working” for parents by adding a sizable top-up to the Canada Child Benefit that could only be used for daycare.

They also said business investment could be jump-started by offering matching grants for a limited time. Perrault and Young, both former Finance officials, estimate their proposals would cost between $40 billion and $65 billion. That’s a lot of money, but the boost to productivity and economic growth would eventually more than cover it.

In the meantime, the debt still would stay below 65 per cent of gross domestic product, allowing Canada to remain a relative haven of prudence in the post-COVID world.

Their proposals provide a helpful sketch of what “ambitious” and “responsible” could look like. Canada’s progressives and conservatives should embrace it, at least until we get through this. They can go back to their cheap American-made slogans after we’ve all been vaccinated for COVID-19.

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