Liberal budget a performance in three acts

Help for the middle class, worries over long-term growth are driving the budget measures to be unveiled Mar. 22 by the Liberal government

Thestar.com
March 6, 2016
By Bruce Campion-Smith

Welcome to the Liberal budget, a performance in three acts.

The first act played out during the fall election when the Liberals made campaign pledges that included the promise of more money for urban infrastructure and green energy, financial help for low-income seniors and a new child benefit to help families.

The second act was performed last month. The lead actor was Finance Minister Bill Morneau, a rookie on the political stage, and his script was full of drama - with plot lines of rising deficits, slowing economic growth and the worry of longer-term stagnation.

Indeed, the growing deficit - projected to be $18.4 billion in 2016-17 and $15.5 billion the year after - has seized the spotlight, fed by a storm of protest by the opposition Conservatives.

Liberals hope to change that narrative when they lift the curtain on the third act on March 22 with the roll-out of their first budget.

The focus of the Liberals’ election platform was retooling the economy to better help the middle class and that theme will underpin the budget measures.

“We campaigned on a very clear program that the economy had developed in a way over the past 20 or 30 years that was making it harder and harder for regular people, the middle class and people in lower income groups to get ahead,” a senior government adviser told the Star.

“It needed a pretty fundamental rethink,” said the adviser, who spoke on background.

Morneau hit that topic late last month. He said the economy is “just not working” for the middle class and cited figures that show that middle-class incomes have not risen as fast as those in higher income brackets.

“The time to act is now,” Morneau said.

On that front, while infrastructure spending is certain to grab the spotlight, senior officials say another budget initiative - the Canada child benefit - promises to have a bigger effect on the lives of Canadians.

During the election, the Liberals said 90 per cent of families would receive more under their child benefit than they get under the Conservatives’ benefit programs - about $3.7 billion more overall, according to the party platform.

The benefit would funnel more cash to families with lower household incomes while eliminating payments altogether for those with household income topping $200,000.

The Liberal platform pegged the overall cost of the new benefit at $21.7 billion in the first year. However, the net new cost was estimated at $1.8 billion because the government will replace child benefits put in place by the Conservatives (worth $17.9 billion) and end income splitting for some households (worth $2 billion).

“It’s a big deal,” the adviser said.

Another influence on federal budget measures is slowing economic growth - and concern that the sluggish growth could be a long-term reality. Private sector economists consulted by the finance department now expect the economy to grow by 1.4 per cent in 2016, down from a forecast of 2 per cent just last fall. Oil prices are expected to also remain far below the estimates of just a few months ago.

All that is hitting Ottawa’s bottom line with federal revenues projected to drop by $12.2 billion in 2016-17 and $10.2 billion the following fiscal year.

The Liberals see one remedy in their promise of record infrastructure investment over the next decade in areas such as public transit, social housing and clean energy. The investments would be worth an extra $60 billion on top of the $65 billion already committed over 10 years.

That has echoes of the infrastructure programs introduced by past governments, including the Conservative response to the 2009 recession when the Harper government opened the taps on stimulus spending and helped drive the deficit to $53.8 billion.

But the Liberals say the infrastructure investments of the upcoming budget are not meant as short-term stimulus. With a focus on modernized infrastructure, clean technology and investments in green energy, the goal is to improve productivity and spur growth.

“Stimulus was never our objective. Revitalization of the economy for the middle class is our objective,” the adviser said.

“It’s never been ‘Let’s prop up this economy that’s not working for people.’ It’s always been ‘Let’s diversify it, revitalize it, clean up our growth trajectory and make sure that growth is more equitably and fairly shared,’ ” the adviser said.

Transformation may be the government’s goal. But others are looking to the budget to jumpstart the economy at a time when the energy downturn has slowed business investment and high household debt has curtailed individual spending, said Jordan Brennan, an economist with Unifor.

“Now is the time to spend and there’s never been a better time and there’s never been an easier justification,” Brennan said. “There is a sound argument to spend more now to reassure business that they can be spending as well.”

The Liberals are taking fire from Conservative MPs, who say the deficit numbers - which are certain to grow even higher once the budget spending measures are factored in - are evidence of government mismanagement.

However, a diverse group of other voices from Bay St. executives to unions to big city mayors are urging the Liberals to invest and even spend more than was initially promised.

“We support the Trudeau government’s commitment to make sizeable investments in infrastructure,” Brian Porter, president and CEO of Scotiabank, told a Toronto audience last month.

“During this time of slower economic growth, we would encourage the government to boost the amount and timing of these investments,” Porter said in a speech to the Canadian Club of Toronto.

Angel Gurria, secretary general of the Organization of Economic Co-operation and Development, says low interest rates afford governments a “unique opportunity” to make infrastructure investments that will “boost demand, stoke growth and actually improve public finances.”

Brennan, of Unifor, dismissed the Conservative criticism of the deficits as political. With interest rates low and Canada’s debt-to-GDP ratio on the decline, Ottawa has the capacity to make big investments, he said.

“He could run - and I think he should run - much bigger budgetary deficits,” Brennan said of Prime Minister Justin Trudeau.

Brennan said reforms to employment insurance such as increasing the benefits, extending their duration and making it easier to get would also provide a boost.

“There would be an immediate stimulus right there. People are going to turn around and spend all that money,” Brennan said.

Key budget numbers

$10 billion

This was the Liberals’ original deficit target. But a slowing economy and declining revenues have driven the deficit to $18.4 billion in 2016-17, a number that will go higher still once budget spending measures are factored in.

2019

The Liberals originally pledged to balance the books by the end of their mandate. The government says that date remains their target; the budget may reveal more about the timeline back to surplus.

90

The percentage of Canadian families the Liberals say will benefit from the new Canada child benefit.

$60 billion.

What the Liberals pledged in new infrastructure spending over 10 years, on top of the $65 billion already committed. Expect the government to move quickly on funds for refurbishment and renewal of transit and social housing. Funding for “signature” infrastructure projects will take longer.

1.4

The percentage growth expected for the Canadian economy in 2016, downgraded from forecasts made just last fall.