Morneau will walk a very fine fiscal line
Finance Minister Bill Morneau will be walking a fine line as he presents his first full reckoning of pandemic spending and deficits on Wednesday, trying to convey multiple messages to multiple audiences with limited information.
He will need to indicate that the government still cares for those hardest hit by the pandemic while showing that the deficit — now 10 times preCOVID-19 estimates — can be well-managed over time.
But since Ottawa is so caught up in the immediacy of the economic collapse and fastchanging conditions make forecasts unreliable, it won’t be a budget or a fiscal update. Instead, we will get a real-time “snapshot” of where spending and the economy are at for now and for the next few months.
Even then, details will be scarce and shrouded with uncertainty in the form of large margins of error. Expect fan charts, multiple scenarios and long sentences more than straight lines and columns.
The hard numbers will be for the bond-rating agencies and fiscal hawks, aimed at showing them that yes indeed, the deficit is enormous and unprecedented, but also affordable and unavoidable given the depth of the economic pain at hand.
The words, on the other hand, will be meant for the broader population, meant to reassure that the most vulnerable people in our population and those who have been hit hardest by the pandemic will be foremost in policy measures of the future. No new measures for now, but many references to help that has already been issued and commitments for more to come down the road — likely in a budget or fiscal update this fall.
Both emphases — on deficit management and on more help to come — are equally important in dealing with the pandemic in a sustainable and fair way.
The size of the deficit can’t be ignored. Royal Bank economists say it will be about $265 billion this fiscal year, once lower revenues, generous income supports and extra stimulus measures expected later this year are taken into account. That’s about 10 times the size of the projected preCOVID deficit.
One bond-rating agency, Fitch, has already downgraded Canada from a top-notch triple-A ranking to a double-A — signalling to financial markets that the country’s debt is higher risk than it once was. If other agencies follow suit, servicing Canada’s debt will become more expensive.
So Morneau will strive to show that the deficit can be well-managed over time, mainly by putting the debt into long-term bonds that lock in rock-bottom interest rates and also by making sure the COVID-19 income supports expire at some point, replaced by more sustainable and narrowly targeted recovery programs.
But the government will also seek to signal that it has learned the lessons of the pandemic and taken them to heart when it comes to those hardest hit — people in longterm care, those trying to take care of children at home while also working from home, lowincome earners, temporary foreign workers, people in the food and accommodation industry.
Statistics Canada released some preliminary findings this week on how the pandemic job-loss has affected Canadians by race, and it looks like the lockdown hit every demographic hard. But visible minorities, especially newcomers, had a rougher time handling the pain. That’s because they were poorer to begin with and less able to make ends meet than the white population.
Morneau and Trudeau will likely signal that they recognize those patterns.
But what everyone wants to hear is how growth will recover and how we get out of this mess. And that’s where downplaying expectations comes in.
Even as the federal Liberals have been focused on the here and now, opposition parties, environmentalists, child-care advocates, anti-racism activists and networks and clubs of all sorts have been dreaming big — blueskying about how much better the country could be if we were forced to start again from scratch.
Ideas to “build back better” or to “get back to work” or “pivot to growth” abound, swamping Morneau’s attempts to curtail expectations even before he has put them out into the public realm. The Conservatives want a back-to-work bonus, the NDP wants a wealth tax. Environmentalists want a green recovery. Child-care advocates say a care-centred recovery needs to come first. Business groups want support for faltering sectors and whatever it takes for buying and consumption to resume.
But the federal government, for now, is not really looking that far ahead. Even on the economic side of the government, the immediate concerns are health-related — how to prevent a second wave, how to grapple with outbreaks, testing, tracing, isolating.
Their fiscal plans are for bolstering the provinces to help pay for those efforts, and to tinker with existing income supports so that people can go back to work steadily and safely.
While there’s some big thinking in some corners of the federal bureaucracy and cabinet, those plans won’t come to the forefront for now. We’ll have to wait for the fall for those hopes and dreams to take the front seat.