National Post

Fall review out of balance

- John I vi s on

The worry when the Trudeau Liberals took office was that they couldn’t operate a spoon — that a two- house paper route would be beyond their organizati­onal abilities.

Early signs were not encouragin­g: spending ballooned, deficits appeared to be running amok. Keep calm and carry on, the Liberals said — “investment­s” in infrastruc­ture and the new child benefit would spark economic growth. In effect, the budget would balance itself.

Credit then where it may or may not be due. While we are a long way from a balanced budget, fiscal meltdown also looks to be a remote prospect.

The government released its fall economic statement Tuesday and the books are looking more rosy than they have at any point since the first Liberal budget. Economic growth is likely to reduce deficits by a cumulative $32 billion over the next five years.

In the current fiscal year, the deficit has fallen from the $ 28.5 billion (with a $ 3billion risk cushion) projected in the 2017 budget to $ 19.9 billion (with a $ 1.5billion adjustment for risk).

Projected economic growth of 3.1 per cent this year is likely to yield an extra $ 8.9 billion of revenue for the government. Even the innumerate journalist­s in the press gallery were able to calculate that this should mean a deficit of $ 16.6 billion (before risk).

The money is borrowed; if results come in better than expected, you should borrow less. But this is a government with an aversion to slimming down — it’s like asking a chocoholic to learn to love lettuce.

Canada’s booming economy is clearly being viewed as a windfall, and instead of being used for deficit reduction, nearly one quarter — or $1.8 billion — of the $8.9 billion in new revenue is earmarked for new “policy actions.”

That means $ 100 million for improving security at embassies abroad; $ 93 million for fixing the government’s pay system; $ 59 million for regulating cannabis; $54 million for refugees and asylum seekers; and so on and on.

More “progress for the middle class” is promised in the coming years — the government said it will enhance the Working Income Tax Benefit for low- income workers by $ 500 million a year from 2019, and index the massive Canada Child Benefit so that it rises with inflation, at a cost of $5.6 billion over five years.

The Liberals again gave no clues about when the budget might be balanced — the deficit is forecast at $ 12.5 billion in 2022-23 — and this may yet hurt them in the next election.

But their preferred metric is the percentage of debt to GDP, and it is forecast to tick gently lower in the coming years.

The update will be a welcome channel-changer for the government, and in particular for Bill Morneau, the embattled finance minister.

He claimed economic growth as a vindicatio­n for a patient calculated strategy, though in truth much of the good news is more by accident than design.

If the Liberals do have any legitimate claim to having kickstarte­d growth it is from the introducti­on of the child benefit program, which significan­tly increased the amount of money available to cash- strapped working families.

Bank of Canada governor Stephen Poloz has described it as providing an economic floor, and said it may have encouraged some parents to enter the workforce rather than stay home.

The Liberals were elected after promising to invest heavily in infrastruc­ture, but the annual financial report for the last fiscal year suggested that money has been hard to get out of the door.

It will be interestin­g to hear Poloz’s thoughts on the government’s latest stimulus move when he unveils his monetary policy report Wednesday.

There are signs the economy is slowing — retail sales for August contracted.

But the belief among many observers is that the economy is close to full capacity and that additional stimulus could prove inflationa­ry, prompting further interest rate hikes by the Bank of Canada.

At least by pushing off the child benefit indexation until the middle of next year, it reduces that prospect.

“If I were the governor, I’d look through this,” said Jean-Francois Perrault, chief economist at Scotiabank.

“( New spending) is not on a scale that is going to have a significan­t impact.”

Morneau and company had better hope so. With a growing debt, and no plan to reduce it, Ottawa is also vulnerable to the negative shock of rising interest rates.

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 ?? LARRY WONG / POSTMEDIA NEWS ?? The introducti­on of the child benefit program by Prime Minister Justin Trudeau and the Liberal government has proven to be a benefit to cash-strapped working families.
LARRY WONG / POSTMEDIA NEWS The introducti­on of the child benefit program by Prime Minister Justin Trudeau and the Liberal government has proven to be a benefit to cash-strapped working families.

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