Morneau steers through sea of red ink
Bill Morneau has promised “positive surprises” in his March 22 budget, and said his government will develop a “robust growth strategy” he will deliver to Canadians by the end of the year.
There will be surprises all right — but they might not pleasant ones. The deficit looks likely to be $25 billion or more, based on the numbers released Monday. That might be justified if there were confidence that the existing growth strategy is “robust.” But apparently, whatever is planned in the budget will be superseded by a new strategy later this year.
Monday’s pre- budget update on November’s fiscal update was aimed at taking the sting out the revelation that the deficit will be a whopper. The finance minister said the deteriorating fiscal position since the fall means the deficit for 2016-17 will be $ 18.4 billion, from $ 3.9 billion in the fall, even if that number is well- padded with $ 6 billion in contingency.
It does not include the $10.5 billion of new spending promised in the party platform. Asked whether he saw even more spending in the budget, Morneau extolled the virtues of stimulus. “In times of economic volatility, the right approach is to invest in the economy,” he said. So that’s a yes.
Morneau was at pains to stress he is talking about investments, “not spending.” As economist Stephen Gordon points out in Tuesday’s National Post, “borrowing to purchase a productive asset makes perfect sense — so long as it is a productive asset.”
Yet the Liberals are alr eady having diffi c ulty identifying infrastructure projects that would justify themselves as productive investments — that’s why they have said the first two years of spending will be on “deferred maintenance backlog,” or fixing up old buses, sewers and social housing.
The Liberals are keen to project the impression of swan-like grace as they glide through these troubled economic waters. The truth is that beneath the surface, their legs are going like the clappers just to keep things on an even keel.
It turns out governing is harder than campaigning. Ministers lament their lack of staff, more than 100 days into the mandate. Many offices are still relying on staff seconded from the public service. Two chiefs of staff, in Justice and Democratic reform, have already been churned. In short, there is a capacity issue that is inhibiting the ability of the govern- ment to implement the big ticket items on its agenda.
Meanwhile, the fiscal outlook gets ever more bleak, knocking $40 billion off GDP this year and next. Privatesector economists project that the dollar will fall further ( to 72.1 U. S. cents), unemployment will be higher and growth slower than was predicted in the fall.
This has implications for budgetary revenues, which have decreased by roughly $11 billion a year for the next two fiscal years. Needless to say, program expenses are higher because of policies like the Syrian refugees initiative and the middle class tax cut, which is not as revenue neutral as it was supposed to be.
Those t rend- l i nes are unlikely to change in the budget. Morneau was asked if he planned to eliminate the two- per- cent spending cap on First Nations, to which he said it was an “enormously high priority to renew and refresh” the relationship with indigenous Canadians. Ditching the cap on First Nations education spending is long overdue, but will prove expensive and the return will not be felt for many years.
At the same time, the finance minister ruled out hiking the GST. “We are not considering any tax changes at this time,” he said.
With revenues deteriorating, spending rising and tax increases ruled out, the Liberals are gambling that their policies will generate jobs and growth.
This explains why they have lit up the Bat Signal over the capital, to summon an economic superhero — in this case McKinsey & Co. global managing director Dominic Barton — to their assistance. Barton has been asked to lead a new advisory council on economic growth where, given his 10 years experience in Asia, he will surely recommend signing the Trans- Pacific Partnership and strengthening trade links with China.
But the decision to contract out this new robust growth strategy, not to mention the tendency to blame the Conservatives, suggests a degree of nervousness, if not yet desperation, on the part of the Liberals.
Conservative interim lead- er Rona Ambrose claimed the Liberals have “frittered away a surplus,” with various Tories pointing out that the Fiscal Monitor, released Monday, revealed the budgetary surplus from April to December was $3.2 billion.
This is disingenuous — as Morneau said, revenues go down and spending goes up in the last couple of months of the year, which would likely have pushed a re- elected Conservative government into deficit too.
But nothing has emerged from the latest economic outlook forecast that suggests anyone involved has a clear sense of how the economy will get back into balance.
“A less ambitious government might see these conditions as a reason to hide, to make cuts or to be overly cautious,” said Morneau, sounding slightly sunstruck.
The finance minister painted a picture for a town hall audience t hat portrayed Canada enduring a snowstorm, while the car is snowed in.
“Digging out will take time ... but here comes your neighbour with a shovel in hand ( and) the teenagers across the street are offering to push,” he said.
The image that came to my mind was more apocalyptic — of a prime minister still grappling with the unpredictability of command, running his vessel into an economic minefield and ordering his crew to damn the torpedoes.
Best batten down t he hatches.
‘IT TURNS OUT GOVERNING IS HARDER THAN CAMPAIGNING.’ — COLUMNIST JOHN IVISON