Trudeau Ready to Open Spending Taps for Coronavirus and Beyond
Justin Trudeau, already among the most enthusiastic champions of government spending, will deliver another dose of stimulus to shore up an economic recovery that’s starting to creak amid a second wave of Covid-19 in Canada.
Finance Minister Chrystia Freeland is expected to announce billions of additional funding in a fiscal update Monday, with dozens of new measures that could include topping up existing benefits to families and business along with teeing up money for infrastructure, daycare and climate change.
The new spending will solidify the Canadian government’s status as the most expansionist in the industrialized world, reflecting Trudeau’s all-in commitment to put the state at the center of the nation’s recovery from the pandemic.
“I want you to know that we’re here for you -- for today, for tomorrow, for as long as we need to get through this. We have your back,” the prime minister told reporters outside his Ottawa residence Friday.
Bank of Nova Scotia is forecasting a budget deficit in excess of C$400 billion ($308.1 billion) this year. That would represent 18% of gross domestic product, an exponential surge from just over 1% in 2019. No major economy will show a bigger fiscal swing in 2020, according to estimates from the International Monetary Fund.
People familiar with the document say the plan will primarily be couched around supporting the economy through the pandemic. But it will also lay groundwork for financing new programs the government says are crucial to Canada’s longer-term recovery.
Much of Trudeau’s agenda, which he laid out at the start of a new parliamentary session in September, will be represented. The so-called Throne Speech prioritized childcare, pharmacare and climate-friendly initiatives such as building retrofits and electric-vehicle charging stations.
Some measures will be fully funded, some partially, and others put off until later years, one official said, speaking on condition they not be identified. There will also be some aid for sectors hit hard by the pandemic, particularly tourism and hospitality.
Freeland, who took the reins at finance in August after Bill Morneau resigned amid a public rift with Trudeau, will argue the surge in debt is affordable given historically low interest rates, the person said. She will also provide reassurances any new structural spending will be part of a sound budgetary framework, what the official described as “fiscal guardrails.”
Economists will see the new stimulus as an added layer of insurance for a recovery that is becoming more tenuous amid a wave of fresh lockdowns. While the economy rebounded sharply over the summer, it’s beginning to stall again and could even shrink in the final two months of this year.
Still, few are clamoring for a bigger fiscal boost. That’s in part because Trudeau has been dishing out money faster than many Canadian households and businesses are spending it.
“With vaccines on the horizon, we’d be more concerned about overdoing the stimulus than underdoing it,” Colin Guldimann, an economist at Royal Bank of Canada, said in a report to investors Friday.
Businesses, meanwhile, are concerned the government isn’t laser-focused on the recovery.
“It can’t let its attention stray to nice-to-haves,” Perrin Beatty, chief executive of the Canadian Chamber of Commerce, said in a telephone interview. “We need to be focused on things that will drive growth, the must-haves.”
There is also a political imperative to produce a more detailed fiscal plan.
Trudeau doesn’t hold a majority in the legislature and lifespans of minority governments tend to be short in Canada. Having had to sweeten the pot after the Throne Speech to win support from the left-leaning New Democratic Party, the Liberals might want a fully fleshed out -- and budgeted -- agenda ready to campaign on should an election be triggered.
That’s limited any political push back. Of the three major opposition parties, which combined hold a majority, only the Conservatives are showing any misgivings about the debt. While they’ve dragged the Bank of Canada into the political melee, they’re wary of fighting Trudeau over pandemic spending given he would tar them as austerity hawks in the middle of a recession.
“We’re willing to support that spending to help people,” Erin O’Toole, Conservative leader, told reporters on Sunday. “What we don’t support is Minister Freeland’s suggestion that she can continue to spend with no plan at all as long as interest rates are low.”
Nor will the temporary surge in borrowing worry most debt watchers. The nation’s fiscal picture was solid before the crisis, reflecting nearly three decades of prudent budget making by both Liberal and Conservative governments. Though Fitch Ratings did downgrade Canada’s creditworthiness in July, the other major agencies are showing patience.
Trudeau’s strategy received a vote of confidence this month when Moody’s Investors Service reaffirmed the nation’s Aaa credit rating, saying its economic strength and “policy effectiveness” will help the economy weather the shocks of Covid-19.
At the same time, Moody’s made it clear its tolerance hinges on the government paring back spending once Canada emerges from the crisis.
©2020 Bloomberg L.P.