With its pandemic spending plans, the Trudeau government is again betting it all on red

As a rookie Liberal leader, Justin Trudeau bet the farm on Canadians' austerity fatigue. Now, as the prime minister prepares for what could be the most important throne speech of his career, the Liberals are signalling that they won't be restrained by the usual fiscal "anchors" as they draft their plan to restore a pandemic-crippled economy.

Government signals it won't be restrained by fiscal orthodoxy as it vows to build the economy back 'better'

Deputy Prime Minister and Minister of Finance Chrystia Freeland and President of the Queen’s Privy Council for Canada and Minister of Intergovernmental Affairs Dominic LeBlanc look on as Prime Minister Justin Trudeau speaks during a news conference on Parliament Hill in Ottawa, Tuesday, Aug. 18, 2020. (Adrian Wyld/The Canadian Press)

Five years ago, Liberal leader Justin Trudeau gambled that Canadians were tired of austerity when his party's election platform took the heretical step of promising to run budget deficits over the medium term.

Now, Prime Minister Justin Trudeau is preparing to gamble again that Canadians will support even more deficit spending when his government rolls out a new agenda later this month to respond to the health and economic challenges posed by the COVID-19 pandemic.

"We are asking Canadians to embark on an entirely different direction as a government," the prime minister said Wednesday in an interview with CBC morning show host Stephen Quinn in Vancouver.

"We are going to rebuild the Canadian economy in a way that was better than before."

The rebuilding effort begins with the Sept. 23 throne speech and will continue later in the fall when Finance Minister Chrystia Freeland releases her first economic outlook.

Anchors away

That outlook will put a price tag on the priorities set out in the speech: investments to make the Canadian economy more environmentally friendly, money to support and protect vulnerable people (such as seniors living in long-term care centres), money for child care to ensure women don't have to choose between work and their kids and plans to address systemic racism.

In normal times, spending on those initiatives would be constrained by concerns about the size of the deficit, or the Liberals' own preoccupation with maintaining the lowest debt-to-GDP ratio among the G7 countries. Economists call such constraints "fiscal anchors" — benchmarks that ensure governments exercise some discipline when they roll out their spending plans.

None of that appears to apply now.

"We are not turning off the taps at this moment," said one Liberal insider familiar with the planning, who asked not to be identified as the individual is not authorized to speak publicly.

"It's all going to take money on a scale we haven't seen before."

That's saying something. The economic supports introduced this spring to help Canadians survive the COVID-19 lockdown blew the deficit up to the once-inconceivable sum of $343 billion.

No target for returning to balance

But major sectors of the economy, including the airline and tourism industries, have yet to recover. A second wave of the pandemic could force businesses and schools to close again — if not nationally, at least in those communities where outbreaks occur.

The uncertainty of the recovery, the likelihood that more economic support will be needed, the shortage of child care — they all make predicting how much federal spending will be required nearly impossible.

Liberal insiders say there will be no target to return to balanced budgets when the government details its spending plans later this fall; the only commitment the prime minister has made is that the post-COVID recovery plan will not raise taxes.

Scott Clark and Peter DeVries, both former senior officials in the federal Department of Finance, warned this week that some form of fiscal anchor is a must.

"To implement a new speech from the throne policy agenda, a new, credible and publicly accepted fiscal anchor will be required," they wrote. "Without it, the fiscal credibility of the finance minister and the government will be completely undercut."

Upending fiscal orthodoxy

Liberal insiders say they are preparing to move beyond any fiscal anchors, arguing the challenges laid bare by the pandemic require innovative spending efforts — not just by Canada but by countries around the globe.

It all suggests this government's prescription for the post-COVID economic recovery will not be limited by the orthodoxy that deficits are bad, or the Paul Martin legacy of producing a string of balanced budgets in the late 1990s and early 2000s.

As first reported by the Toronto Star this week, Liberal MPs are being canvassed by their government for ideas on how to build the economy back better.

Many of them believe addressing systemic racism in policing ought to be at the top of the government's to-do list. Other Liberal MPs want to see immediate spending on green infrastructure — for everything from buying new fleets of electric buses for municipal transit systems to upgrading housing.

Those priorities are shared by many of the labour leaders who enjoy significant access to Trudeau's cabinet ministers.

Canadian Labour Congress president Hassan Yussuff met with Trudeau in advance of the throne speech. He lists immediate spending on green infrastructure, expanding employment insurance and training programs and boosting child care as priorities for the labour movement.

"I think it's a smart move on the government's part to recognize that, whatever their priorities might have been in the last election, that they need to shift and change in a dramatic way to address the concerns that I think we all can agree that this pandemic has exposed," Yussuff said in an interview with CBC's The House airing this weekend.

Smart move or not, proroguing Parliament to set out a new agenda comes with considerable political risk for a minority government. Trudeau will need the support of one of the other main parties.

"And that's why prorogation and a throne speech, which will allow opposition parties to weigh in on whether or not they agree with this new approach, is a fundamentally important thing in our democracy," he said.

Liberals insist they don't want an election. But the prime minister's own statements suggest that, as his government prepares to change course, he's not backing away from one either.


Chris Hall

National Affairs Editor

Chris Hall is the CBC's National Affairs Editor and host of The House on CBC Radio, based in the Parliamentary Bureau in Ottawa. He began his reporting career with the Ottawa Citizen, before moving to CBC Radio in 1992, where he worked as a national radio reporter in Toronto, Halifax and St. John's. He returned to Ottawa and the Hill in 1998. Follow him on Twitter: @chrishallcbc

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