Morneau not leaving much of a legacy
Some finance ministers leave legacies. Paul Martin, a Liberal, will be remembered for gutting the welfare state in his battle against deficits. Michael Wilson, a Conservative, will be remembered for introducing the hated but fiendishly efficient value-added tax known as the GST.
Jim Flaherty, another Conservative, will be remembered as the reluctant Keynesian who ran huge deficits in an effort to pull Canada from recession.
What legacy will Bill Morneau, the current Liberal federal finance minister, leave?
In terms of this week’s budget alone, the answer is: not much. Tuesday’s budget is wide-ranging and often useful. But it is not dramatic. At times, it may prove to be counterproductive.
At the macroeconomic level, Morneau continues his charmingly insouciant approach to deficits. The Liberals came to power in 2015 saying that deficits don’t much matter and that as long as the ratio of government debt to gross domestic product is falling, things will sort themselves out.
This was an about-face from their previous position. But in purely economic terms they were correct. For an economy as big as Canada’s, the fact that the federal government faces a shortfall of $19.8 billion next year is largely irrelevant.
Politically, however, deficits can be dangerous. Many voters find the idea that governments can operate perpetually in the red counterintuitive. As the Liberals should remember from their own experience, it is easy to use the deficit as a bogeyman to justify slashing social services.
At a more specific level, Tuesday’s budget is a typical preelection grab bag aimed at sewing up different voting blocs. Young people will face lower interest rates on their student loans. Impoverished seniors will be able to take low-wage jobs without losing as much of their Guaranteed Income Supplement or Allowance benefits. Workers between the ages of 25 and 64 will be eligible for a training allowance of $250 a year, to a maximum of $5,000.
Most of this is worthwhile. There are some caveats. The training allowance, for instance, can work only if the provinces change their labour laws to let workers take re-education breaks without forfeiting their jobs. But at least it’s a start.
Measures designed to let young people break into the housing market are less useful. The budget’s centrepiece here is a scheme that would see the government’s Canada Mortgage and Housing Corp. assume up to 10 per cent of the equity in a home purchased by a first-time buyer. This may sound good, but in tight housing markets such as Toronto and Vancouver, it will almost certainly drive up real estate prices further, with most of the benefit accruing to the sellers.
The government is expanding another program aimed at increasing rental supply. But the take up on this so-called Rental Construction Financing Initiative is agonizingly slow. Since its implementation in 2017, only five projects representing 500 rental units have been announced.
There had been speculation that this budget would focus on pharmacare. But that was never in the cards. Morneau is wary of introducing a pricey, publicly funded, universal drug coverage program and had arranged for an advisory body to deliver its final pharmacare recommendations in May or June, well after the budget.
On Tuesday, Morneau did announce spending on measures that could be used in a universal pharmacare system, such as helping to finance the expensive drugs needed to fight rare diseases. But these measures could also be used in a much less ambitious drug program designed to fill in the gaps left by Canada’s current hodgepodge of pharmaceutical plans.
What will Morneau’s legacy be? He may want to be remembered for the innovation agenda he first announced in 2017 and keeps on re-announcing. But nothing much is happening on the innovation front so that’s unlikely.
He may have to be satisfied with being remembered as the man who delivered the popular Canada Child Benefit back in 2016. Or as the guy who persuaded the provinces early on in the Liberal mandate to increase the Canada Pension Plan, a crucial source of income for retired workers.
Everything since then, while often important, has been less memorable.