Prime Minister Justin Trudeau has run out of money so more help for the middle class will have to wait
The Trump effect and slow economic growth have Ottawa taking a wait-and-see approach.

thestar.com
By Paul Wells
Feb. 23, 2017

A funny thing happened on the way to Justin Trudeau’s new world of justice for the middle class: the federal government ran out of money.

On Wednesday I told you about Justin Trudeau’s speech last week in Hamburg, where he told a blue-chip crowd in the German port city about the challenges of governing amid a rising tide of voter outrage at traditional brokerage parties.

Voters are right to be outraged, he said. Both business and government need to adjust. “It’s time to get real about the challenges facing the middle class,” he said. “Old approaches don’t work anymore...We can’t go about things the same way and expect to succeed in this new world.”

The timing of Trudeau’s speech - weeks before a federal budget, although I don’t know how many weeks because the Liberals are mum on a specific budget date - suggested the prime minister was foreshadowing a new direction. The Hamburg speech was different in tone from any he’s delivered lately, urgent and rather dark, although not different in message.

Indeed, as early as February 2014, Trudeau was warning about the risks of economic growth that fails to benefit ordinary people. “I worry that at some point, Canadians will say, ‘Why should we support a growth agenda if it doesn’t help my family?”

Trudeau’s advisors are persuaded that the same rebellious sentiment he warned against in 2014 helped elect Donald Trump next door in 2016.

So what, in 2017, does getting real about the challenges facing the middle class look like?

Maybe not that much. “The problem,” a senior Liberal told me this week, is that substantial measures to help the middle class “don’t match our fiscal framework. We don’t have the money to be that generous. And the populist budget was last year.”

Bill Morneau’s 2016 budget did indeed contain big new measures designed to get money to working families, none larger than the Canada Child Benefit: $4.5 billion in its first year, more than the new money the Liberals spent on Indigenous communities, public safety, arts and culture, public-transit infrastructure and green infrastructure combined. (Spending on some of those other files is set to increase over time, but with the child benefit, the investment was big right out of the starting gate.)

With the smaller but still considerable middle-class tax cut - a hike on income taxes at the highest incomes, to pay for slightly lower taxes for less affluent Canadians - that budget looked like a down-payment on the sort of agenda Trudeau had described before he won the 2015 election.

But now it looks like the down-payment might have to do for a while.

“We’re trying to keep an eye on what’s happening with Trump,” my Liberal source said of the new U.S. president. While everyone awaits the concrete details of a Trump tax policy, the Trudeau Liberals are leery of new tax measures here in Canada that could raise new revenues but put Canada at an increased fiscal disadvantage. That means there’s no miracle to be done on the revenue side.

Economic growth? No luck either. It’s stubbornly sluggish around the world.

“People forget that when Stephen Harper balanced his budget, he didn’t do it so much through cuts - though he did some of that - but he mostly did it when oil was at $100,” my Liberal source said. Now oil revenues are durably much lower, and Harper’s two-point GST cut continues to constrain revenues. “It’s the worst of both worlds, you could say.”

Some of the most ambitious measures the Liberals have introduced will take a long time to generate benefits. The new infrastructure bank, which seeks pension funds and other large international investors as partners in new infrastructure projects, should become a reality this year. But it’s unlikely to put serious money into serious construction before 2018 at the earliest.

Nobody’s suggesting Morneau’s second budget speech will be nothing but an embarrassed shrug and a lopsided grin. There will be room for surprises and novelty in the quarter-trillion dollars the federal government now spends in any given year. If nothing else he can re-announce increased spending that was already planned for 2017-18 and beyond in last year’s budget.

But as a shield to guard against the global rise of populism that Trudeau described in Hamburg, it all looks a bit meagre. “We need a bit of luck that we haven’t had yet,” my Liberal source said. “More global growth. Oil going up a bit. Something to give us a boost.”