‘ FISCAL EROSION’: MORNEAU URGED TO SPEND WISELY.
• It’s been just over six months since the Liberal government promised to begin cranking up its fiscal assault on a worn down Canadian economy. Since then, not much has really changed — growth remains slow and employment numbers continue to see-saw.
But infrastructure money is now trickling into communities and tax benefits are reaching middle- class families.
“We took a prudent decision in our ( March) budget that the kinds of measures that we took are going to start making an impact of the economy,” Finance Minister Bill Morneau said Thursday after meeting in Toronto with a dozen of the country’s top private- sector economists ahead of a fiscal update, expected next month.
“And what we’ll be doing ... is giving Canadians a clear sense of where the economy is today and what we see it in the future,” Morneau told reporters following the closeddoor discussions with economists.
“The things that we have done so far — cuts in taxes for middle-class Canadians, the introduction of Canada Child Benefit help families, and the long- term objective of improving pension outcomes through enhancement in the Canada Pension Plan — do deal with that anxiety,” the minister said.
“But more importantly, the infrastructure investments that we’ve started to make are going to have a positive long-term impact on the Canadian economy — and that’s what we’re trying to get at.”
In its March 2016 budget, Ottawa committed to a deficit of $29.4 billion to fund the government’s stimulus program, and another $ 29- billion deficit in fiscal 2017, with the price tag edging lower over a five-year period.
Before Morneau’s remarks on Thursday, TD Economics issued a separate report saying Ottawa could run larger deficits than anticipated — as much as $34 billion this year alone.
“This fiscal erosion extends through the entire five-year horizon, leaving the cumulative deficit $ 16.5- billion above that forecasted in March,” TD said.
Douglas Porter, chief economist at BMO Capital Markets, cautioned against ramping up the level of fiscal stimulus before the initial impact has been determined.
“Given the circumstance we’re dealing with — an unemployment rate that’s stuck at seven per cent, and incredibly low long-term interest rates — I think some modest support for the economy, not from the provincial government, the federal government, does make some economic sense,” said Porter, one of the economists who met with Morneau.
“However, I would be cautious about becoming impatient and trying to do more at this point ... and wait until we really need stimulus. I would very much say we are not in an emergency situation. The government set out a reasonable plan and I think they should carry it through.”
During their Thursday meeting, the private- sector economists laid out where they saw growth heading this year and in 2017. The consensus was for growth of about 1.2 per cent in 2016 and close to two per cent next year. Not great, but going in the right direction, at least — a welcome change from the troubling start to this year, when the global collapse in oil prices and wildfires in Alberta pulled the country into a temporary downturn.
Global uncertainty — from Brexit and the divisive election in the U.S., which is Canada’s largest trading partner — hasn’t helped the domestic environment either.
However, Morneau said the federal government will “work with whatever administration there is the United States,” adding that Canada will take “an approach that recognizes that trade is a positive, but that it has to show benefits to Americans and Canadians in order for people to feel engaged in the opportunities.”
Closer to home, the housing market poses another threat to Canada, with the federal government anxious to cool foreign purchases of residential property — particularly in Vancouver and Toronto. Recent tightening of mortgage rules appears to have made some initial impact on the market.
“The housing measures we put in place were clearly intended to deal with the risks in the market,” Morneau told reporters.
“So, the measures we took will have the outcome of having a more stable market for the long term and, we hope, protect Canadians,” he said. “We don’t have any other measures that we’re waiting to announce, but we will remain vigilant in watching the market to ensure that it is stable for the long-term.”
WE WILL REMAIN VIGILANT IN WATCHING THE MARKET.