Budget will be tailored to meet economic bad news, Liberals say

Finance Minister Bill Morneau hinted Monday the Liberals could expand and fast-track their plans, but warned against rushed changes to a program already conceived with a sluggish economy in mind.

Thestar.com
Jan. 18, 2016
By Tonda MacCharles

Prime Minister Justin Trudeau has given Finance Minister Bill Morneau free rein to craft a budget to respond to an onslaught of bad economic news with a plan to spur job creation and long-term productivity growth.

Yet amid calls for the federal government to bring down a budget earlier, to spend more and faster than promised in the election campaign, and to pick up a greater share of the tab for cash-strapped provinces or municipalities, Trudeau said only that “we’re open to a certain degree of flexibility to make these things happen.”

Trudeau gathered his 30 cabinet members and top aides at a wintry seaside location here where they are being schooled in “deliverology” - a buzzword coined by a former British government aide on how to implement the government’s platform and get measurable results.

But Canadians may be looking for results much sooner than the Liberal platform anticipated given few foresaw oil prices at $29 (U.S.) a barrel or a Canadian dollar that has weakened to 70 cents (U.S.).

Add to that, a new study released Monday by the Federation of Canadian Municipalities reported that a third of Canada’s municipal infrastructure is at risk of “rapid deterioration,” including some 40 per cent of transit infrastructure that needs repair.

It assessed the state of municipal roads and bridges, public transit, buildings, sport and recreation facilities, storm water, waste water and potable water infrastructure, and concluded that much of Canada’s municipal infrastructure “is at a critical juncture.”

Municipal governments are not keeping pace with the need for investments in repair and upkeep, the study found.

“The bottom line is that the longer we wait to act on these repairs, the more expensive it will get. Canada needs to start planning for the future by reinvesting in our existing assets now,” federation president Raymond Louie said in a written release.

Trudeau told a news conference “our focus on infrastructure money is actually getting projects built, getting people working on things that will activate the job market in the short term but create growth and productivity gains in the medium and long term for our communities and for our country.”

But confidence is shaky. Moody’s credit agency didn’t downgrade Alberta’s credit rating but changed its outlook for that province to negative. And consumers were shaken when a new western-based discount airline that had just started up postponed operations while a federal licensing review takes place.

Shoring up consumer and investor confidence is a challenge facing Trudeau, as the Bank of Canada weighs another interest rate cut mid-week.

The prime minister dodged direct answers on how a big a deficit he’d be willing to run to keep economic engines running, but Trudeau promised the Liberals’ first budget would be “fiscally responsible” and set his sights on a vaguer, but potentially achievable target, according to economists.

Trudeau said Canada’s low level of federal debt relative to the overall size of the Canadian economy (the debt-to-GDP ratio) “gives us an opportunity to invest, but we also are committed to ensuring that that debt-to-GDP ratio keeps decreasing in the coming years.”

That will require an economy that chugs to life and grows at a rate faster than the government accumulates debt.

And for that to happen, Trudeau and his key ministers are holding fast to their claim that the Liberal platform - and its pledge of $60 billion in new infrastructure spending over 10 years - foresaw today’s problems.

“We believe that our plan which was developed in the face of an economy that was slowing is the right approach,’ said Morneau.

In fact, the only concession Morneau made to any changed economic realities or forecasts was to suggest the government is casting about for infrastructure projects that will boost productivity, to move those out more quickly.

“If we find projects that are responsible that can help us with long-term productivity, that are also ready now, we’d like to move forward.”

Economist Craig Alexander, formerly at the TD Bank and now with the C. D. Howe Institute, said the government is under intense pressure to use infrastructure spending as a form of stimulus, but he cautioned that while the economy has slowed, not all regions are affected equally and overall the country as a whole is not in recession.

“The economy is growing, not contracting,” he said. If the federal government overspends now, it could be digging a hole that will be hard to climb out of, he said. Moreover, “If you then have a recession, you have much less scope to respond without creating a greater financial problem.”

At Friday’s close, the Canadian loonie had fallen for 11 days in a row against the U.S. dollar but it ticked up slightly Monday. Benchmark oil prices remained low, hovering around $29 a barrel, with Canadian oil discounted against that.

The news was grim. Some ministers like Amarjeet Sohi, Trudeau’s minister responsible for the planned billions in infrastructure spending to be rolled out, told reporters his goal is to get the money out as quickly as possible, even it means stepping up federal contributions to eligible projects where municipalities and provinces can’t come up with their one-third share.

But that, too, is potentially problematic, warns Alexander. “Lots of municipalities are going to argue they don’t have the money.”

Natural Resources Minister Jim Carr acknowledged that the economic conditions have shifted, with the oil price slide that has hit some regions hard, saying it underlines the need to move western oil to tidewater. “But ultimately there has to be a regulatory process in place that carries the confidence of the Canadian people.”

He told the Star in an interview the government hopes to announce “within weeks” a promised interim environmental review process so energy projects begun under the previous government’s regime “don’t have to re-start from zero” when Ottawa revamps the environmental assessment process.

Trudeau was defensive when asked by reporters if he really understood western concerns, and pointed a finger of blame at the past government.

“We recognize for 10 years there’s been a government that has not understood that the way to support our resource industry is to be stronger on environmental oversight and responsibility.”

On Monday, however, the Conservatives went on the offence on his economic management.

Conservative interim leader Rona Ambrose quipped about a New York Times article that fawned over Trudeau: “Have you heard we’re hip? We’re hip. We want to be hip, but we don’t want to be broke. Hip is good. Hip is very good, but prosperous is, too,” Ambrose said in a speech to the Canadian Club in Toronto.

Ambrose has demanded a meeting with Trudeau - and he said he was happy to talk. But Ambrose is derisive of Trudeau’s plans, saying “it wasn’t because of a downturn in the economy that the surplus was blown. It was because they spent $3 billion in new spending before the year actually ran out,” Ambrose said.

She said that the Conservatives plan to support the Liberal government when “appropriate,” but that her party “will stand up and demand the government make its case for every tax dollar it spends. We will demand that it justify each and every intervention - or as many Canadians see it, interference - with Canadians’ lives or Canadian businesses,” Ambrose said.