by Paul Wells
But enough of summer silly-season stories. Justin Trudeau’s biggest problem isn’t that he has spent August wearing only half his clothes. It’s that Canada has spent 2016 wearing only half its economic growth.
Fixing the latter challenge will be way harder than throwing on a shirt.
The other day I caught up with a Liberal who’s involved, as many of them already are, in preparing next spring’s federal budget. It’s supposed to be the fun one, as Paul Martin’s deficit-busting second budget in 1995 was. New governments’ first budgets are normally delivered in a hurry, within only a few months after an election, by rookies unsure of their roles, offering only tweaks to the previous government’s assumptions and work habits. If there’s anything new, it’s obligatory stuff, the transformation of a few key election promises into a spending plan.
It’s with its second budget that a government can begin to etch its philosophy, if it has one, into the history books. Finance Minister Bill Morneau’s budget next February or March will lay out the details of Phase Two of the government’s infrastructure plan, dozens of billions of dollars in new money for high-profile city-building projects, big new transit projects and the like. Other measures should describe the transition to a lower-carbon, higher-innovation economy. All of this is what the Liberals tell one another they were elected to do.
So why was my acquaintance so glum?
In a word – well, two – low growth.
“We say that everything we do, taken together, will add a point to GDP growth,” this person said. “Well, first, we’ll see whether we can do that. But second, it depends what level of growth we’re given by the global economy. If we add a point to GDP growth, it doesn’t help all that much if that means growth goes from 1 per cent to 2 per cent.”
Indeed. When the Liberals wrote their election platform in the spring of 2015, the Bank of Canada was projecting 2.5-per-cent real GDP growth for 2016. By last October, when they won, the bank had cut the growth projection to 2 per cent. Last month, the Bank released its latest growth projection for the year, now down to 1.3 per cent.
Growth is still supposed to rebound, modestly, next year. But then, it was supposed to rebound this year, right up until we were actually in this year.
Compare and contrast. For four wild years at the end of the 1990s, from 1997 to 2000, GDP growth soared between 4 and 5 per cent. Those were the days when Jean ChrÈtien and Martin launched the Canada Foundation for Innovation and the Vancouver Agreement, cut income taxes by an amount comparable to Stephen Harper’s later GST cut and still managed to sharply increase cash transfers to the provinces after cutting them earlier.
Those heady achievements were fuelled by collapsing interest rates, the first Internet tech boom and the happy coincidence that Ontario was tucked into the middle of the United States during a rampaging economic recovery.
None of those circumstances is matched by current events. Interest rates aren’t going much lower. There’s a growing sense that information technology has pretty much coughed up all the productivity gains it could have offered. And while Hillary Clinton’s election seems likelier every day, she has no magic plan to boost growth in Canada’s largest export market.
There is only so much any Canadian government can do to influence the country’s economy. As we saw in the late 1990s when times were good, and again a decade later when the banking crisis tanked Canada’s economy, we are mostly captive to world trends.
The International Monetary Fund is chuffed that Trudeau wants to borrow big to invest in infrastructure at low interest rates, but that’s not a formula most of the developed world can copy: their debt load is higher, their room to manoeuvre correspondingly limited.
Sharply limited growth would put a low ceiling on all the Trudeau government’s aspirations. It would amount to the thwarting of a huge political bet.
“Budget 2016 focuses on growth, not austerity,” Morneau’s first budget document said in March. I’ll say: the word “growth” appeared 290 times in that document, more than once per page.
In two weeks, Trudeau’s cabinet will travel to northern Ontario for the third in a series of quarterly retreats.
The first two were relaxed, upbeat, focused on professional development for a crew of mostly rookie cabinet ministers. This one will have more of an edge. The boss plainly took care to ensure he enjoyed his summer. Here’s hoping the rest of them did, too. Recess is over.
Copyright 2016 – Torstar Syndication Services