Morneau vows to take pru­dent bud­get ap­proach

The Globe and Mail (Prairie Edition) - - NEWS - BILL CURRY OT­TAWA

Fi­nance Min­is­ter Bill Morneau is sig­nalling that his 2017 bud­get will show a pref­er­ence for “pru­dent” new spend­ing over tax cuts as the Lib­eral gov­ern­ment braces for ma­jor pol­icy change from Canada’s top trad­ing part­ner.

Mr. Morneau met Fri­day morn­ing with pri­vate-sec­tor econ­o­mists to hear their ex­pec­ta­tions for the Cana­dian econ­omy, in­clud­ing the po­ten­tial ram­i­fi­ca­tions of new tax and trade mea­sures un­der dis­cus­sion by pres­i­dent-elect Don­ald Trump and the Repub­li­can-con­trolled Congress in Washington.

When asked di­rectly whether the next fed­eral bud­get will lower cor­po­rate tax rates in light of promised busi­ness tax cuts south of the bor­der, Mr. Morneau re­sponded with plans for new spend­ing to pro­mote in­no­va­tion.

“We al­ready have a very good sit­u­a­tion in Canada. We have a cor­po­rate tax rate here that is very com­pet­i­tive glob­ally,” he said in French. “We want to con­tinue to have a very com­pet­i­tive econ­omy and to that end, we will make in­vest­ments and take mea­sures to help have a more in­no­va­tive and pro­duc­tive econ­omy. That’s our goal.”

The meet­ing with pri­vate-sec­tor econ­o­mists took place sev­eral weeks ear­lier than last year, which could be a sign that the Lib­er­als are plan­ning to re­lease the bud­get in Fe­bru­ary rather than March, as is more com­mon. The meet­ing with econ­o­mists nor­mally takes place near the end of the gov­ern­ment’s pre­bud­get process in or­der to base the bud­get num­bers on the most upto-date data.

Fi­nance Canada re­leased a re­port in late De­cem­ber that showed Ot­tawa is on track to run deficits un­til the 2050s but would still man­age to shrink the na­tional debt slightly when mea­sured as a per­cent­age of GDP.

Busi­ness lead­ers and op­po­si­tion MPs ex­pressed alarm at that fore­cast and urged Mr. Morneau to use the 2017 bud­get as an op­por­tu­nity to set a clear time­line for eras­ing the deficit.

“We will have more to talk about in our bud­get as we move for­ward,” Mr. Morneau said Fri­day when asked di­rectly if the bud­get would set a new time­line for re­turn­ing to bal­ance.

Mr. Morneau also ap­peared to sug­gest that he would leave some fis­cal room in the gov­ern­ment’s plans so that it has the flex­i­bil­ity to re­spond to pol­icy changes in the United States.

“We will be pru­dent and we will cer­tainly be mak­ing those in­vest­ments con­sid­er­ing the pos­i­tive im­pact those in­vest­ments can make and be care­ful to as­sure that we have the ca­pac­ity to deal with the en­vi­ron­ment that we find our­selves in,” he said in re­sponse to a ques­tion about how the bud­get would pre­pare Canada for changes in Washington.

Fri­day’s dis­cus­sions took place be­hind closed doors in Toronto. Econ­o­mists are ex­pected to limit their pub­lic com­ments on the meet­ing to the points they made.

CIBC chief econ­o­mist Avery Shen­feld said his ad­vice to Mr. Morneau is that Ot­tawa should not be con­cerned with run­ning deficits for a pro­longed pe­riod of time as long as the debt does not in­crease as a per­cent­age of GDP.

“To me, a grad­u­ally de­clin­ing or sta­ble debt-to-GDP ra­tio is a rea­son­able tar­get for the fed­eral gov­ern­ment,” he said in an in­ter­view af­ter the meet­ing.

Mr. Shen­feld also said that it will likely take sev­eral months be­fore a clear pol­icy di­rec­tion emerges in Washington.

“There should be a con­cern in Ot­tawa about what’s hap­pen­ing in the U.S. and how that might blow back on Canada ei­ther pos­i­tively, but more wor­ri­somely, there’s some of this that could be quite neg­a­tive,” he said.

“My view is that we just don’t know yet what that U.S. pol­icy mix is go­ing to look like,” he said. “It might re­quire an ad­just­ment in Canada’s think­ing if we want to at­tract, for ex­am­ple, top tal­ent to in­no­va­tive in­dus­tries, but it’s some­thing we could cer­tainly ad­dress in the sub­se­quent bud­get be­cause none of these U.S. re­forms are go­ing to be hit­ting in 2017.”

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