Liberals might have to bluff a little while...
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Feb 23, 2016  |  Vote 0    0

Liberals might have to bluff a little while playing shaky fiscal hand: Hébert

Staying the course on the campaign promises may be the politically savvy option for Justin Trudeau and Bill Morneau, but it falls well short of a magic economic bullet

OurWindsor.Ca
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OTTAWA — Here are three things you need to know about the politics of the $18 billion-plus deficit federal finance minister Bill Morneau has now placed squarely in the window of the March 22 budget.

1. When a government puts its fiscal cards on the table a month before its first budget, it is almost always because it has been dealt a very poor hand.

On that score, Morneau ended up with some of the worst cards of the past two decades.

It is not that his predecessors were spared budget challenges. Paul Martin took over the finance portfolio in 1993 at a time when Canada was saddled with an out-of-control structural deficit. And Jim Flaherty had to deal with a global economic crisis. But each of them had at least one ace to play.

Martin’s tenure at finance coincided with a long cycle of steady economic growth and Flaherty could count on a robust energy sector to mitigate the impact of the recession on Canada.

By comparison, Morneau has only wild cards up his sleeve. Energy prices could still go down. Indeed, the latest government forecast is based on a price for oil 25 per cent higher than it is currently selling for. There is no certainty that Canada — and the global economy — will know anything but more sluggish growth for the duration of the current Liberal mandate.

Had Stephen Harper or Thomas Mulcair won the October election, their finance minister would be eating crow on their behalf this budget season. Based on the same forecasts as the Liberals, they had promised to balance the books — and deliver on costly promises. The Conservatives and the New Democrats would have had to introduce some deep spending cuts to avoid running a high deficit.

2. There are two alternative reasons why a newly elected government would want to get ahead of bad news on the deficit front.

The first is to start laying out a narrative to drop some of the big-ticket items in the party’s election platform. Martin did just that after the 1993 election — turning the fight against the deficit into job one for the Liberal government.

The other is to mitigate sticker shock, thus avoiding that the elephant of the deficit crowd out all the other measures of the first Liberal budget.

Parsing through Morneau’s talking points on Monday, it is clear that Justin Trudeau’s government is as committed to its spending plan or — to use Morneau’s words — its “investment” plan as when it was promising to deliver on its platform without running a deficit much larger than $10 billion.

As of this week, the deficit counter starts at $18.4 billion this year and $15.5 billion next year and will mount with every dollar spent/invested by the Liberal government on infrastructures, child benefits, enhanced pensions for poorer seniors, improvements to the lot of indigenous communities, etc.

A deficit in the neighbourhood of $30-billion is in the cards for the first full fiscal year of Liberal rule, with additional deficits to come over the following years of the mandate.

3. The government is convinced that spending its way out of the current downturn is the way to go. But it has no guarantee that it will work except that it feels the balanced budget alternative and the deep cuts that would require would be worse. On this, it has the support of a fair number of economists.

But at the same time Trudeau and Morneau know full well that the Liberal election platform does not amount to a real plan to address some of the core problems that ail the Canadian economy.

Staying the course on the campaign promises may be the politically savvy option but it falls well short of a magic economic bullet.

Hence the government is appointing an advisory council on economic growth to help map a long-term strategy. It is expected to report by the end of the year.

Meanwhile, based on Monday’s preview of the first Morneau budget, expect the Liberals to use a lot of rhetorical platitudes next month to cover up the fact that they will be treading water while they look for a way to avoid sinking in deficit quicksand over their subsequent budgets.

Toronto Star

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