National Post (National Edition)
Will Freeland put us out of our misery?
Deeply embedded in the red ink of the fall fiscal update was a section on “targeted stimulus to jumpstart the recovery” — an undefined $100 billion spending plan to “build back better."
It conjured up visions of the movie Local Hero, where the Texas oil man, Mac, and his dorky companion, Danny, have just run over a rabbit on a country road.
“Shall we put it out of its misery — hit it with something hard?” wondered Danny.
“You've just done that with a two-tonne automobile,” dead-panned Mac.
Does anyone else feel like the rabbit?
As the update makes plain, Canada's economy is in a fragile state.
The pandemic has aggravated headaches that already existed — the deficit for the fiscal year is pegged at $381.6 billion, public debt has risen by $386 billion, demand for natural resources is down, the trade deficit has widened and unemployment is up.
The document reveals $13.4 billion in new spending, to add to the 68 existing support programs.
Some of it makes sense — home energy retrofits, building out universal broadband, zero-emission vehicle infrastructure, youth training funds; some of it is more questionable, at least in terms of timing.
But the update makes clear this is merely a “down-payment” on investments to come.
Like the rabbit, just as the economy is starting to shake off the effect of being hit by a Ford Cortina, the finance minister is intent on hitting it with a rock.
The update reveals that the government is “developing details of a plan to help Canada build back better” — spending up to $100 billion over three years, the equivalent of 3-4 per cent of GDP.
The post-stimulus budgetary deficit would average $136 billion a year for the next six years and debt to GDP would average 56.5 per cent over the same period.
Someone should point out that Yes Minister was not a documentary; Sir Humphrey was being satirical when he said the Treasury pitches for as much as it thinks it can get away with, and then thinks what to spend it on.
Stimulus will help accelerate our economic recovery, the government claimed. Yet by its own admission, stimulus has already been “preloaded” — the Liberals transferred billions more dollars into the bank accounts of Canadians than they lost due to the pandemic.
Real disposable income in this country rose by more than 10 per cent in the first half of the year — even as GDP fell by 13 per cent — because the Liberal government distributed around $56 billion in income replacement to cover just $23 billion in lost income.
“Many people have substantially increased their savings … and household balance sheets are now in a better place than would normally be the case,” the statement says.
No kidding. That’s what happens when you miss your target by $33 billion.
At least that money may well have the desired effect, when it is unleashed by consumers after the pandemic has passed.
Who has confidence that the $100 billion now burning a hole in Liberal pockets will be equally well invested?
Chrystia Freeland, the finance minister, indicated what she has in mind for the funds — an economy that is greener and more inclusive. Secretariats and task forces on everything from child care to pharmacare; from vulnerable populations to early learning, are deploying across the land, searching for ways to spend the windfall.
But, as Freeland has pointed out, public resources are finite and right now they need to provide a return on investment.
Spending should be limited to things that contribute to economic growth.
In one of the less celebrated passages of the update, the government revealed that the capital investment intentions of Canadian companies have fallen by around $40 billion this year. Economic growth is expected to average 1.4 per cent a year until the middle of the decade, down from 1.8 per cent before the pandemic.
Freeland talked about “economic rebirth in the short run and strengthening this country’s competitiveness in the long-run.”
Yet on the day she gave her speech in the House of Commons, Canada’s AI jewel, Element of Montreal, announced it had sold itself to ServiceNow of California.
We obviously don’t know why co-founder and chief executive Jean-François Gagné decided to sell but it can’t have helped that innovation is not a focus for a government that has been criticized for failing to help tech companies build to global scale (Ottawa did provide a $5 million repayable loan to Element).
The sad truth is, Canada is no longer where you want to be, if you are going for gold.
We are consuming more than we are producing; we are swimming in debt and even companies based here prefer to invest somewhere else.
The government’s fallback is that interest rates are rising more slowly than the economy is growing, so we can keep expanding programs without having to pay for them.
If Freeland and her colleagues truly believe that low interest rates are a substitute for durable economic growth, we better get used to being whacked upside the head with rocks.