Federal liability looms over $111.5 billion more red ink, moderate growth: Morneau’s economic update

“We have challenges in Alberta and Saskatchewan with changes in the resource sector but the view is positive” Finance Minister Bill Morneau

Jason Unrau Montreal QC

Finance Minister Bill Morneau’s “fall” Economic and Fiscal Update promises five more years of red ink on the federal books, nearly 25 percent of which comprises $27.9 billion in public service pension liabilities through the same period.

All in, including an almost $7 billion bump the current 2010-2020 budget’s projected deficit, is $111.5 billion in additional spending that Ottawa must finance on borrowed money; much cheaper to leverage at this time according to Morneau.

“Interest rates are at a low level right now,” said the Finance minister. “And the advice, not only nationally but from the IMF or the World Bank or the OECD is that making fiscal investments in prosperity today…is the right economic approach.”

Instead of reigning in spending and at least attempting to balance a budget, this Finance minister and his government under Prime Minister Justin Trudeau have pivoted to employing debt-to-GDP (Gross Domestic Product) ratio as a measurement of fiscal health.

Economic update numbers show that ratio as between 30.8 percent (2018-19), increasing slightly to 31 percent and then falling to 29.1 for the fiscal year 20204-25.

According to United Nations economist Anis Chowdhury, a developed country’s “prudential limit’ is 60 percent.

By comparison, the United States’ debt-to-GDP ratio is around 105 percent and before the budget-slashing days of Prime Minister Jean Chretien and his successor Paul Martin, Canada’s debt-to-GDP ratio was nearly 67 percent.

“What we’re projecting is…reduc(ing) that level of debt as a function of our economy, down to 29% during the forecast horizon,” said Morneau of his fiscal course.

“That’s significantly better than any other of those countries that we compare ourselves against.”

In other comparisons with the United States, Canada is not doing as well. The Finance minister’s economic update has Canada on track for 1.7 percent GDP growth in 2019, compared to a more robust U.S. economy charted for 2.4 percent growth.

For 2020, the update predicts 1.6 percent GDP growth with an “average forecast” of 1.8 per annum, through to 2020.

Across Canada’s jurisdictions, provincial GDP growth varied in 2018; stronger than two percent in Ontario, British Columbia, Quebec and P.E.I. and far below two percent in Alberta, Saskatchewan and Manitoba.

“We have challenges in Alberta and Saskatchewan with changes in the resource sector but the view is positive,” acknowledged Morneau in his preamble and later during a Q&A with reporters.

“The situation of Canada and the situation of Alberta are quite different.”

In his response to the government’s fiscal update, Conservative finance critic Pierre Poilievre cited our sluggish GDP growth – Bank of Canada described it earlier this year as “below potential” – the job losses in November, suggesting that Liberals were driving the country into an economic ditch.

“What we’re facing now is the prospect of a made in Canada recession,” said Poilievre during his response to Morneau’s economic update.

“And what are we getting for all this debt? Well, we got 71,000 job losses, while the Americans increased jobs by a quarter-million.”

According to the economic update, 400,000 net new jobs were created in 2019, despite the November losses.

Poilievre also reiterated his pledge that a Conservative government would “unleash the economy” and “unleash the free market system” by lowering taxes and cutting red tape for business.

Among the big-ticket targets are Bill C-69, new environmental legislation the Liberals introduced last government as well as Bill C-48 – the northwest coast oil tanker ban – either, say Conservatives, will seriously hamper resource development and trade.

The Ontario MP for Carleton was also cagey on his leadership ambitions in the wake of party leader Andrew Scheer’s resignation.

“It’s too early to say what’s going to happen,” said Poilievre to repeated questions about his intentions.

“What I do know is that we need someone who will stand up, fight back and win. They’ll stand up for our principles. Fight back against the corrupt liberal cabal, and win the next election. That is the criteria for choosing a future leader.”

Challenged by one reporter that only he and Conservatives were beating the recession drum, Poilievre evoked the late-U.S. President Ronald Reagan by name and a variation fo the Gipper’s 1980 election rhetoric against incumbent Jimmy Carter.

“A recession is when your neighbour loses his job. A depression is when you lose your job. A recovery is when Justin Trudeau loses his job,” he said.


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