Stimulus stockpile means PM isn’t in a rush to double down
Will Prime Minister Justin Trudeau double down on fiscal stimulus in the wake of Canada’s recent abysmal economic data? Don’t hold your breath.
Report after report is painting a dire picture for the country. It lost 31,200 jobs in July and its trade deficit rose to a record in June, Statistics Canada said Friday. Later this month, the agency will probably confirm the country’s economy shrank in the second quarter — the third contraction in 18 months.
It’s a situation much worse than economists predicted only a few months ago, when Trudeau’s Liberal government released a budget that forecast $120 billion in deficits over six years, including a $12-billion stimulus package for the current fiscal year.
But Trudeau, who could use his fall fiscal update to top up spending if he so chooses, is busy enough just trying to get existing stimulus money out the door.
Monthly spending data released by the finance department suggests funds are hardly being rushed out. In April and May — the first two months of the fiscal year, and the most recent in available data — the government spent 14.9 per cent of all budgeted program expenses. That’s the lowest proportion in five years, and below the 15.3 per cent average pace over the decadelong reign of the defeated Conservatives, who were notorious for leaving budget funds to lapse at the end of the year, never to be spent.
In the Conservative government’s 2009 stimulus budget, that two-month share was 16.1 per cent.
Trudeau’s pace of spending is more in line with what’s expected from a new government, as departments recalibrate spending to meet a new agenda and cabinet ministers get up to speed on decisions.
It also underscores the challenges that fiscal policy — particularly infrastructure spending — can face as a tool for stimulus. It’s tough for the federal government to disburse money because it often only releases funds once a project is fully underway, according to Bruce Carson, a top aide to former prime minister Stephen Harper and a key architect of the 2009 stimulus plan.
“There is a vast difference between (federal) money that is committed and money actually spent and in the hands of workers,” Carson said.
Of the $12 billion in additional stimulus pledged in Trudeau’s March budget, $4 billion is being allocated to infrastructure and $1.4 billion for housing. If finding ways to spend that money isn’t enough to preoccupy the finance department, government officials will also soon need to deliver a plan on how to spend tens of billions on additional infrastructure, as Trudeau has pledged $120 billion for such investment over 10 years.
In total, Trudeau’s government estimates its 2016 measures will bolster growth by 0.5 percentage points, and that could be enough to lift the economy out of its slump in the second half. Investors, for example, don’t expect the Bank of Canada to come up with any more help on top of Trudeau’s fiscal push. Trading in interest-rate derivatives shows the odds governor Stephen Poloz will cut before the end of the year moved higher after Friday’s reports — but are still only about 20 per cent.
The Liberals have also introduced a measure of prudence into their forecasts. The $29 billion projected deficit this year had a built-in $6 billion contingency for an even worse economic outlook than Canada currently faces. So, in a way, there is already reserve stimulus in the system.