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The Liberal Government rolls out post-pandemic spending plan ahead of likely election

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By Julie Gordon

OTTAWA (Reuters) -Canadian Prime Minister Justin Trudeau’s government on Monday lined up billions in new spending to provide emergency support during a virulent third wave of COVID-19 and to help launch an economic recovery ahead of an election expected later this year.

The budget, the Liberal government’s first in two years because of the pandemic, is aimed squarely at boosting near-term growth and includes a long-promised national daycare plan.

It also follows through on stimulus promised late last year, outlining a C$101.4 billion ($81 billion) “growth plan” over three years, with nearly half of that spending coming in the first year.

“We have to finish the fight against COVID – and that costs a lot of money,” Finance Minister Chrystia Freeland told reporters, adding that hundreds of thousands of Canadians remain out of work because of the pandemic.

Liberal insiders expect Trudeau to seek an election later this year to try to secure a majority in parliament. The Liberals currently need the support of at least one other party to pass legislation, including the budget.

Opposition lawmakers were unimpressed with the budget. But the leader of the left-leaning New Democratic Party said he was not prepared to bring down the government over it.

“It is clearly irresponsible to have an election or in any way to trigger an election while we are in the midst of this third wave,” Jagmeet Singh told reporters. “The impact on people would be devastating and we are not going to do that.”

Erin O’Toole, who heads the official opposition Conservatives, said: “This is an election budget and a poor one at that.” His party trailed the Liberals by 37% to 29% in an Abacus Data poll published last week.

Business groups were pleased with the added certainty of finally having a full budget, but remained unsold on the need for a massive stimulus plan with the economy already set to surge later this year as pent-up demand is unleashed.

“There’s a lot of spending in a lot of programs. But the effects of all of those combined together for me is just a bit unsure,” said Robert Asselin, senior vice president of policy at the Business Council of Canada.

The deficit for the fiscal year that started on April 1 will be the second largest in recent decades, with the closely watched debt-to-GDP ratio hitting 51.2%, although Freeland promised a return to restraint as the economy gets back to normal.

“I think the key here is the debt-to-GDP (ratio) is expected to peak this year … and it’s expected to come down in the years ahead,” said Doug Porter, chief economist at BMO Capital Markets. “I think that’s a credible plan if they can stick to it.”

THIRD COVID WAVE

Trudeau’s Liberal government has been buoyed in opinion polls by its response to the COVID-19 pandemic. But a third wave of infections is pounding the country’s largest city, Toronto, and its suburbs – a key Ontario region for securing an electoral majority – and the coronavirus vaccine rollout has trailed other wealthy countries like the United States and Britain.

Of the nearly C$50 billion in new spending this year, C$27 billion is set aside to extend pandemic recovery measures like wage and rent subsidies for businesses and for a new program to help transition companies back to hiring.

The budget also aims to create a national childcare program and to make a more aggressive effort to reduce carbon emissions, both measures that polls show are important to Liberal voters.

While Freeland said historically low interest rates allowed significant investment, she also pledged to unwind deficits and reduce the debt-to-GDP ratio over the medium term. A senior government official said, however, that a fiscal anchor should not be seen as a “straitjacket.”

The official also said that the government had run stress tests on the accumulating debt and was confident of its abilities to service that debt even as interest rates rise in the future.

“It’s hard for us to draw a conclusion that we’re out over our skis. We don’t believe we are. We think we’re in very solid terrain,” the official told reporters.

Surging growth should also increase revenues, with 5.8% growth forecast for this year, after a 5.4% contraction in 2020.

The deficit in the current year is projected to hit C$154.7 billion, less than half that of the previous fiscal year, with total national debt soaring to C$1.23 trillion this year, up from C$1.08 trillion in the previous year.

The Canadian dollar steadied at about 1.2530 to the greenback, or 79.81 U.S. cents, after the budget was released. Canada‘s 30-year yield extended its rise, up 7.5 basis points at 2.060%.

($1 = 1.2526 Canadian dollars)

(Reporting by Julie Gordon; Additional reporting by David Ljunggren, Steve Scherer, Fergal Smith and Moira Warburton; Editing by Peter Cooney)

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Canada promises two Arctic icebreakers in pre-election job boost

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Canada on Thursday promised to build two Arctic ice breakers and create hundreds of jobs in two politically influential provinces that will help decide an election considered likely this year.

The Liberal government, citing the need to increase Canada‘s footprint in the resource-rich Arctic as global warming opens up the region, said at least one ship would be ready by 2030.

“(This) will give Canada a year-round presence in the Arctic to help … safeguard our marine environments, ensure the safe and efficient movement of ships, and protect our borders,” Environment Minister Jonathan Wilkinson said in a statement.

Ottawa said each ship will generate 300 jobs and create another 2,500 positions in various supply chains. One vessel will be built in Quebec’s Davie shipyard and the other by Seaspan in British Columbia.

The two provinces together account for 120 of the 338 seats in the House of Commons and are crucial to the fortunes of Prime Minister Justin Trudeau, who aides say is likely to call an election by end-2021.

Yves-Francois Blanchet, leader of the opposition Bloc Quebecois, dismissed the announcement as electoral politics, saying polls suggested some senior Quebec Liberals could lose their seats.

The ice breaker project has been hit by several delays since the previous Conservative government first announced it in 2008.

Officials declined to say how much each vessel would cost but said it would exceed the most recent estimate of C$1.3 billion ($1.1 billion), which was made in 2012.

The 150-meter (490 feet) ships will weigh 23,700 tonnes and – unlke Canada‘s sole existing ice breaker – are designed to operate year-round throughout the Arctic.

Russia and the United States are the other major Arctic players while China says the region is of strategic interest.

($1 = 1.2193 Canadian dollars)

 

(Reporting by David Ljunggren; Editing by David Gregorio)

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G7 to consider mechanism to counter Russian ‘propaganda’

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By William James

LONDON (Reuters) -The Group of Seven richest countries will look at a proposal to build a rapid response mechanism to counter Russian “propaganda” and disinformation, British Foreign Secretary Dominic Raab told Reuters.

Speaking ahead of a G7 foreign ministers’ meeting in London, the first such in-person meeting for two years, Raab said the United Kingdom was “getting the G7 to come together with a rapid rebuttal mechanism” to counter Russian misinformation.

“So that when we see these lies and propaganda or fake news being put out there, we can – not just individually, but come together to provide a rebuttal and frankly to provide the truth, for the people of this country but also in Russia or China or around the world,” Raab said.

Russia and China are trying to sow mistrust across the West, whether by spreading disinformation in elections or by spreading lies about COVID-19 vaccines, according to British, U.S. and European security officials.

Russia denies it is meddling beyond its borders and says the West is gripped by anti-Russian hysteria.

“It’s time to think of why the countries which are sick to the core with propaganda, and which used it more than once to justify armed intervention and toppling of governments … accuse our country of their own sins,” Russian Foreign Ministry spokeswoman Maria Zakharova said on social media after Raab’s comments.

China says the West is a bully and that its leaders have a post-imperial mindset that makes them feel they can act like global policemen.

Britain has identified Russia as the biggest threat to its security though it views China as its greatest long-term challenge, militarily, economically and technologically.

Raab will meet U.S. Secretary of State Antony Blinken on Monday, kicking off a week of diplomacy aimed at reinvigorating the G7’s role and forming a wider bulwark against those it sees as undermining the rules-based international order.

“The scope for intense global cooperation, international cooperation with our American partners and indeed the wider G7, that we’re convening this week has never been greater,” Raab said.

He stressed that meeting in person – something only possible due to measures like daily testing of attendees – would make diplomacy much easier: “You can only do so much by Zoom.”

The G7 members are Britain, the United States, Canada, France, Germany, Italy and Japan and their combined gross domestic product is about $40 trillion – a little less than half of the global economy.

RUSSIA-CHINA

British and U.S. officials have expressed concern in recent months about growing strategic cooperation between Russia, the world’s largest country by territory, and China, the world’s fastest-growing major economy.

Asked about the concerns, Raab said: “What matters to us most is that we broaden the international caucus of like-minded countries that stand up for open societies, human rights and democracy, that stand for open trade.”

He said many of those allies wanted “to know how this pandemic started.” The coronavirus outbreak, which began in China in late 2019, has killed 3.2 million people and cost the world trillions of dollars in lost output.

Raab said some of the barriers between the G7 and other like-minded countries needed to be broken down, so that there could be a broader network of allies that stood up for open markets and democracy.

Britain has invited India, Australia and South Korea to attend this week’s meeting, running from Monday to Wednesday, and the full leaders’ summit in June.

Asked whether Britain could seek to join a separate grouping known as the Quad – the United States, Japan, Australia and India – Raab said there was no concrete proposal as yet, but Britain was looking at ways to engage more in the Indo-Pacific.

(Writing by William James and Guy Faulconbridge; Additional reporting by Vladimir SoldatkinEditing by Susan Fenton and Frances Kerry)

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New Zealand says differences with China becoming harder to reconcile

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New Zealand

By Praveen Menon

WELLINGTON (Reuters) -Differences between New Zealand and its top trading partner China are becoming harder to reconcile as Beijing’s role in the world grows and changes, Prime Minister Jacinda Ardern said on Monday.

The comments come as New Zealand faces pressure from some elements among Western allies over its reluctance to use the Five Eyes intelligence and security alliance to criticise Beijing.

In a speech at the China Business Summit in Auckland, Ardern said there are things on which China and New Zealand “do not, cannot, and will not agree”, but added these differences need not define their relationship.

“It will not have escaped the attention of anyone here that as China’s role in the world grows and changes, the differences between our systems – and the interests and values that shape those systems – are becoming harder to reconcile,” Ardern said.

“This is a challenge that we, and many other countries across the Indo Pacific region, but also in Europe and other regions, are also grappling with,” she added.

In comments that sparked some reaction among Western allies, Foreign Affairs Minister Nanaia Mahuta said last month she was uncomfortable expanding the role of Five Eyes, which includes Australia, Britain, Canada and the United States.

“This speech appears to be crafted to deflect surprisingly sharp and severe criticism from commentators after Mahuta’s remarks last month,” said Geoffrey Miller, international analyst at the political website Democracy Project.

However, the comments do not change New Zealand’s overall shift to a more China-friendly, or at least more neutral position, he said.

“Ardern and Mahuta are selling the new stance as New Zealand advancing an ‘independent foreign policy’ that is not loyal to any major bloc,” he added.

SENSITIVE ISSUES

China, which takes almost one-third of New Zealand’s exports, has accused the Five Eyes of ganging up on it by issuing statements on Hong Kong and the treatment of ethnic Muslim Uyhgurs in Xinjiang.

New Zealand’s parliament on Tuesday is set to look at a motion put forward by a smaller party to declare the situation in Xinjiang as a genocide.

Ardern said New Zealand would continue to speak about these issues individually as well as through its partners, noting that managing the relationship with China is not always going to be easy.

China’s Ambassador to New Zealand, Wu Xi, who also spoke at the event warned that Hong Kong and Xinjiang related issues were China’s internal affairs.

“We hope that the New Zealand side could hold an objective and a just a position, abide by international law and not interfere in China’s internal affairs so as to maintain the sound development of our bilateral relations,” she said in her speech.

Beijing is engaged in a diplomatic row with Australia and has imposed trade restrictions after Canberra lobbied for an international inquiry into the source of the coronavirus. China denies the curbs are reprisals, saying reduced imports of Australian products are the result of buyers’ own decisions.

Over the weekend, U.S. Secretary of State Antony Blinken said China had recently acted “more aggressively abroad” and was behaving “increasingly in adversarial ways.”

When asked if New Zealand would risk trade punishment with China, as did Australia, to uphold values, Ardern said: “It would be a concern to anyone in New Zealand if the consideration was ‘Do we speak on this or are we too worried of economic impacts?'”

(Reporting by Praveen Menon; Editing by Lincoln Feast.)

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