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Rising Covid-19 Cases Curtail Trudeau’s Spending Ambitions

Rising Covid-19 Cases Curtail Trudeau’s Spending Ambitions

Prime Minister Justin Trudeau’s lofty ambitions for “building back better” after the pandemic have come crashing into the reality of an apparent second wave of the virus in Canada.

As case numbers climb, Trudeau’s government has made a sharp pivot from talk of boldly transforming the nation’s economy and social programs to the immediate task of tackling the coronavirus and the recession. The rhetorical volte-face will be evident in a key policy speech Wednesday.

Rising Covid-19 Cases Curtail Trudeau’s Spending Ambitions

It’s another forced turn for a prime minister keen to be more activist but wary of the political costs of overreaching. Since he lacks a majority in the legislature, Trudeau is only a parliamentary vote away from facing the electorate and Canadians may have little stomach for anything but a focus on jobs and staying healthy.

Pressure is growing on Trudeau to keep his attention on the pandemic. Provinces are asking for more health funding. The surge in cases threatens to undermine a recovery that was already losing momentum. The business community is pushing back against a perceived lack of fiscal discipline from a government that has already earmarked C$380 billion ($285 billion) in new debt this year.

Trudeau is also facing the prospect of a reinvigorated Conservative Party. New opposition leader Erin O’Toole is armed with a full war chest and has received good early reviews, with one recent poll showing him in a dead heat with the prime minister.

“The government has no political mandate to throw the fiscal doors wide open forever,” Don Drummond, a former senior official in Canada’s finance department, said by phone. “There should be a national debate about what direction we want to go.”

Reality Check

When he forced out his finance chief last month, Trudeau hinted the time was right to consider an ambitious spending agenda focused on a green recovery and overhauling social safety nets -- financed by historically low interest rates. “This is our moment to change the future for the better,” the prime minister said at the time. “We can’t afford to miss it because this window of opportunity won’t be open for long.”

He was right. A month is a long time in politics and much has changed in Canada.

The number of active Covid-19 cases has risen 128% since August. Provinces are reimposing stricter limits on social gatherings. Last week, two of Trudeau’s rivals in the legislature caught Covid-19 and the opening of schools has triggered a surge in testing that’s overwhelmed capacity.

Data suggest a full economic recovery is a long way off, even though the economy has made up a lot of ground. There are still almost two million Canadians who are without work or facing reduced hours because of the virus.

The change in the government’s focus was made clear last week when Finance Minister Chrystia Freeland said her two main economic priorities are to control the pandemic and to get unemployed Canadians back to work.

It was a logical pivot. “One of the problems with many green initiatives is that they don’t create a lot of jobs and revenue so they aren’t addressing your main problems,” said Janice MacKinnon, a former finance minister from the western province of Saskatchewan.

Rising Covid-19 Cases Curtail Trudeau’s Spending Ambitions

Wednesday afternoon’s so-called Throne Speech will have three pillars: health-care spending, financial support for households and rebuilding the economy, according to a senior government official who asked not to be identified because the document is not yet public. Exact costs won’t be detailed until a budget update later this fall, but the prime minister will expand on the speech in a nationally televised address in the evening.

The Liberal government’s survival is at stake. The speech will be put to a confidence vote that could trigger an election, though O’Toole and Yves-Francois Blanchet -- leader of the separatist Bloc Quebecois, which holds the third-most seats -- are in isolation after their positive coronavirus tests.

Trudeau is most likely to win support from the left-leaning New Democratic Party, though it’s not a sure thing. Leader Jagmeet Singh wants to see the government extend benefits for Canadians impacted by Covid-19, but will consider the agenda as a whole before deciding whether to vote with the Liberals.

Rising Covid-19 Cases Curtail Trudeau’s Spending Ambitions

“The prime minister in the past has said a lot of things in a Throne Speech and he hasn’t acted on them,” Singh said in an interview. “We need to see the government hit targets and not just set them and miss them.”

O’Toole, meanwhile, is touting the Conservatives as a viable alternative to the Liberals that would ensure responsible fiscal management. He’s using his Covid-19 diagnosis to take aim at testing shortfalls and tap into broad concern about the state of the health care system. And he signaled upon winning the leadership last month he will be targeting centrist voters who’ve backed the prime minister before but lost faith.

“There are a lot of voters in this country who held their nose and voted for Justin Trudeau in the last election,” said pollster Shachi Kurl, executive director of the Angus Reid Institute. “This time the referendum may well be about Justin Trudeau if we see a situation wherein Erin O’Toole is able to make that successful pivot to the center.”

©2020 Bloomberg L.P.