We’re in debt, but Morneau believes all will be well

Bill Morneau is a Micawber-like figure, unshakable in his optimism that the worst won’t happen.

Neither snow nor rain nor recession nor the gloom of adverse court decisions on key pipeline infrastructure can stay the finance minister’s sunny view of the Canadian economy.

Not even the prospect of the engine of the country’s economic growth — the Alberta oilpatch — seizing up.

There is a widely-held view in Alberta that the Liberal government is trying to sink the oil industry and that the purchase of the Trans Mountain pipeline was a smoke-screen.

“That is an absurd proposition,” Morneau said in an interview in his spacious office overlooking downtown Ottawa, the day after he delivered his fall economic update.

He said the $4.5 billion investment in Trans Mountain was “indicative of our absolute desire to make sure we resolve a very important challenge.”

The government has been accused of adding to Alberta’s price differential woes by introducing C69, the environmental impact assessment bill that is currently before the Senate.

Morneau said that he is working with industry to make sure it meets their joint goal of getting projects built.

“My sense is that we will be able to do that in a way that will provide confidence to the sector. I don’t accept the argument that this government has not been very, very focused on how we can deal with the challenge of getting our resources to international markets. We’re the government that substituted action for words,” he said.

Action on any number of fronts has proven expensive and Morneau stands accused of being cavalier with the public finances.

He is defensive when questioned about his claim that the latest fall update was “fiscally responsible.” After all, the document projects the national debt will reach $767 billion in 202324 — a number 20 per cent higher than the $617 billion owed in Stephen Harper’s last year in office.

Morneau said the $14 billion plan to allow businesses to write off investments in machinery and other assets more quickly was an appropriate response to changes to the tax structure in the United States.

Most analysts would concede this is at least productive spending — companies have to invest to get it.

The real problem is that the economy has been performing strongly — revenues were up nearly 10 per cent in the first six months of the fiscal year — yet the deficit still increased because of this government’s inveterate spending problem.

Conservative analyst Sean Speer and Morneau’s former policy adviser, Robert Asselin, wrote recently that “policy-makers will have almost no leverage when the next recession hits.”

Morneau said he accepts that the country always needs to be prepared for the eventuality of a downturn.

“I will also make the assertion that we don’t want to be the ones to trigger a lower level of growth so that we precipitate those concerns,” he said.

“We are the country among our key allies that has the lowest debt as a function of our economy. That’s the most important measure of our resilience to deal with unexpected economic challenges. We’ve made a commitment that we’re going to reduce the debt as a function of our economy on a going forward basis. You can see in our fall economic statement, we expect revenues to be greater than expenses, which continues to put us in a positive situation.”

Morneau said the move to budgetary balance is just “a question of timing”.

It is true that budgetary revenues do outpace program expenses going forward.

But that does not include the public debt charges that will contribute to deficits of $95 billion in the next five years.

All of these assumptions are based on private sector growth projections of nearly two per cent a year going forward.

If that happy scenario does not play out, a government already in the red will be faced with the double whammy of declining tax revenues and higher employment insurance and social assistance payments.

In that event, the continuous reduction of debt as a proportion of GDP that Morneau clings to will not happen.

The finance minister maintains his government has “found the appropriate balance” in a “changed competitive reality” between fiscal prudence and spending.

I asked if the government made a mistake with its initial burst of social spending on seniors and child benefit. When the government took office, income levels were on the rise across the country — the median national income rose by more than 10 per cent between 2005 and 2015; the number of seniors in poverty was half the general population and falling; the share of child poverty was declining and so on.

Did the government need to support sections of society who were getting better off anyway — particularly when it required borrowed money?

“We had a clear objective in 2015 to deal with the fact that the benefits of growth in the decade before were going disproportionately to some sectors of the population. We know that led to a sense of discontent and anxiety among middle-class Canadians. Our goal was to make sure that everybody gained.”

But everybody was already gaining?

“Everybody was gaining but the gains were going disproportionately to smaller sub-sets of the population. Our goal — and it’s a goal that has been satisfied — was that by making sure that we put in place policies that enabled everyone to be success. Three years later, we’ve had significantly increased workforce participation among women, among new immigrants, among youth, among Indigenous Canadians. Our goal is to have all Canadians be successful to address the demographic challenge. That’s been achieved over the last three years,” he said.

Morneau will not be shaken from his view that all will be well.

I suggest that Canada is now locked into a series of structural deficits that will not disappear with economic growth.

“We don’t see it like that,” he said. “Look at economists’ expectations for growth and what happens to our fiscal situation. We get into a very good situation in a very reasonable time-frame.”

And we do if you take the optimistic view and share the interpretation of the four most positive economists, who project budgetary balance within five years.

But as an optimist who always carries an umbrella, I’d be more comfortable with a finance minister who worked on the most gloomy prognostication on offer — the four economists who think the deficit will be $5 billion a year worse than current forecasts.

As even Mr. Micawber knew: “Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”