Two streams of news are playing out this week: the Liberal government’s economic agenda, and the spread of the Omicron variant of COVID-19. Both have political consequences.
Finance Minister Chrystia Freeland’s midterm report, released Tuesday, made it clear that, for this government, social priorities trump economic concerns.
Stronger-than-expected economic growth (part of it inflation-induced) has lowered the projected deficit for this year, to a still-eye-watering $145-billion. But instead of using the increased revenue to lower that figure, the Liberal government will be increasing spending, including $40-billion over seven years to compensate First Nations children and families for the failures of the child-welfare system.
This comes on top of the Liberal government’s ambitious child-care program, which will permanently increase federal spending by more than $8-billion a year when fully implemented, the equivalent of more than a third of the defence budget for one single program.
The Liberals have increased health care funding to the provinces. They made $78-billion in commitments over five years during the election campaign that will be incorporated into the next full budget. They are offering $5-billion to assist British Columbia in the wake of recent disastrous floods, with more to come.
Even as this government establishes new records in spending and debt, a serious challenge from south of the border threatens the Canadian economy. Alexander Panetta, the CBC’s Washington correspondent, tweeted on Wednesday that he was pressing senators about a proposed provision in the Build Back Better bill that would impose a stiff tariff equivalent on electric vehicles built in Canada for sale in the United States.
When Mr. Panetta asked Sherrod Brown, Democratic senator from Ohio, about a letter Ms. Freeland and International Trade Minister Mary Ng had sent urging senators to drop the restriction, Mr. Brown replied: “I don’t care what Canada thinks.”
If the Senate passes the bill with the EV import restriction in place, the Canadian economy could take a significant hit. And it won’t help that the federal government is threatening to impose retaliatory tariffs in return. Canada cannot win a trade war with the United States, and that trade war will itself damage the economy.
With inflation running at almost 5 per cent, the government this week renewed the Bank of Canada’s mandate to keep it at around 2 per cent. If the inflation rate doesn’t come down soon, governor Tiff Macklem will have no choice but to raise interest rates, which will slow economic growth and cause pain for anyone with a mortgage or other forms of debt.
All this comes amid growing concern within the public service over the Liberals’ lack of interest in generating economic growth, as my colleagues Robert Fife and Steven Chase reported this week.
That lack of concern should come as no surprise. Like his father Pierre, who showed little interest in economic issues, preferring to focus instead on constitutional concerns, the Prime Minister places a low priority on fiscal or monetary policy.
When asked in 2014 whether he would be willing to run deficits as prime minister, he famously replied: “The commitment needs to be a commitment to grow the economy and the budget will balance itself.” On his watch, the budget has never been balanced.
Questioned about rising inflation during the election campaign in August, he said, “You’ll forgive me if I don’t think about monetary policy. You’ll understand that I think about families.”
At some point, voters are going to notice.
Polls have shown over the years that when the economy is the top concern among voters, Conservatives move ahead of the Liberals. But when other concerns push the economy down the list, the Liberals do better.
“Concern about the economy could be the sleeper issue of 2022,” says pollster Nik Nanos of Nanos Research.
“Canadians have seen a Trudeau Liberal government that has spent funds to help Canadians and Canadian enterprises get through the pandemic,” he told me by e-mail, “but there is less of a sense of how it would invest to create jobs and prosperity. Canadians today are more pessimistic about the future than at any time since we have started tracking this.”
The day the economy matters more to voters than the pandemic is a day the Liberals should worry about.
The UK labor strikes are years in the making – Vox.com
Bond correction coming: What an economist and an investor say about inflation – Financial Post
Freeland meets with provincial, territorial finance ministers in Toronto
TORONTO — Deputy Prime Minister and Finance Minister Chrystia Freeland is hosting an in-person meeting Friday with the provincial and territorial finance ministers in Toronto to discuss issues including the current economic environment and the transition to a clean economy.
The meeting will focus on the economic situation both domestically and globally, according to a federal source with knowledge of the gathering, including discussions on how to provide incentives and supports to be competitive with the U.S.’s Inflation Reduction Act.
U.S. President Joe Biden’s Inflation Reduction Act includes electric-vehicle incentives that favour manufacturers in Canada and Mexico, as well as the U.S.
The incentives, which were already revised to include Canada and Mexico after originally focusing on the U.S., are now facing criticism from Europe about North American protectionism.
The source, who spoke on the condition they not be named to discuss matters not yet made public said the ongoing challenges with health care in Canada will also come up at the meeting. More substantive discussions on that will be held next week when the prime minister meets with premiers on Feb. 7.
In her opening remarks, Freeland said it’s essential for Canada to have its rightful place in the transition to a clean economy, calling it one of the biggest challenges of the moment.
We are in a situation with a lot of economic uncertainty globally, said Freeland, adding that later in the day, the ministers will have a discussion with Bank of Canada governor Tiff Macklem.
“I think that conversation with the governor will be useful and important for all of us,” she said.
Despite the need to address health care challenges, Canadian jobs and the transition to a clean economy, Freeland said the government recognizes it also has to contend with real fiscal constraints.
Freeland will hold a closing news conference at 3:30 p.m. local time.
The meeting comes at a tense time for many Canadian consumers, with inflation still running hot and interest rates much higher than they were a year ago.
The Bank of Canada raised its key interest rate again last week, bringing it to 4.5 per cent, but signalled it’s taking a pause to let the impact of its aggressive hiking cycle sink in.
The economy is showing signs of slowing, but inflation was still high at 6.3 per cent in December, with food prices in particular remaining elevated year over year.
Interest rates have put a damper on the housing market, sending prices and sales downward for months on end even as the cost of renting went up in 2022.
Meanwhile, the labour market has remained strong, with the unemployment rate nearing record lows in December at five per cent.
— With files from Nojoud Al Mallees in Ottawa and James McCarten in Washington
This report by The Canadian Press was first published Feb. 3, 2023.
The Canadian Press
Social Media Buzz: Mt. Washington, Balloon, Adani, Kyrie Irving – Bloomberg
Federal government is in a tight fiscal environment, Freeland says ahead of health talks – CBC.ca
The UK labor strikes are years in the making – Vox.com
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