They still will not be dissuaded from planning spending – possibly more of it than ever
On Thursday came another illustration of the Liberal government’s refreshing new “evidence-based” policy, in which the fiscal evidence somehow always backs new spending policies. Just a day after Statistics Canada released moderately encouraging data on Canada’s fourth-quarter economic performance, Pm Justin Trudeau was telling Bloomberg that the case has not been stronger for digging deeper into debt.
Trudeau sat down with reporter Josh Wingrove to share some of the fiscal wisdom he’s gained in his 4 months at work. “My message to other government leaders is don’t fall under the trap that thinking that balancing the books” is definitely an end in itself, he explained. “It’s a means to a finish.” Of course, there aren’t many governments anywhere near to falling into that trap, including Trudeau’s. One of the G7, only Germany has been reckless enough to fall for the ol’ balanced-budget con, although somehow its economic growth still managed to outpace Canada’s for 2015.
The Liberals wish to dress Canada’s troubles in Keynesian clothes to warrant Keynesian remedies
And yet, Canada’s economic performance last year offers far more bright spots than we’d been primed to believe all the talk out of Ottawa of the need for increasing amounts of stimulus. Finance Minister Bill Morneau’s February fiscal update downgraded projected federal revenue estimates most steeply in the just-finished final quarter of 2015 and the current first quarter of 2016. But because Gluskin Sheff’s chief economist David Rosenberg highlights, a lot of the contraction expected in 2015 never materialized; both consumer spending and residential construction, together comprising two-thirds from the Canadian economy, stayed positive through all four quarters this past year, with business investment proving the weak spot – which had almost everything related to pullbacks in capital-intensive resource projects. Meanwhile, industry was already showing growth in November and December, before the boosts coming our way from your heavily discounted dollar really show up in the numbers. Which will possess a far bigger effect on the following few quarters’ performance than any planned deficit spending the Liberals are intending.
Still, they won’t be dissuaded from planning it – possibly more of it than ever before, as Wingrove reported that Trudeau “hinted he’s considering expanding” further on the already ballooning deficit projections. Obviously the plodding pace of all this federal “investment,” that is still to become announced within the budget at the end of March will, even when fast-tracked, be lucky to really make it out of the door by the last quarter of 2016. Already, Rosenberg’s economists forecast two percent or more annualized growth this year, which some might call the ceiling to have an economy with productivity stuck at one per cent, and less than a single per cent population growth.
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But to Trudeau, the only real possible reading of the information is that the leash on spending should be further loosened. Based on the Bloomberg story, he apparently even holds up the fact that his government is now counting on an $18.4 billion deficit – well over the $10 billion maximum the Liberals promised within the election, and before any new expenses are taken into account -as yet more reason to invest. Here’s Wingrove quoting Trudeau: “‘It’s in my experience a lot more of a reason why we need to be investing intelligently in infrastructure, in profit the pockets from the middle class, to grow the economy,’ Trudeau said from the fiscal situation he inherited after his majority win in the Oct. 19 election.”
The mounting evidence, however, is the fact that neither spending on infrastructure nor profit middle-class pockets will have much impact on boosting growth. The Liberals want to dress Canada’s troubles in Keynesian clothes to warrant Keynesian remedies, as though we’d a great deal of underutilized labour capacity that needs only to be put to work digging ditches and building bridges, when it is almost entirely related to uncontrollable global commodity shocks. Meanwhile, Statistics Canada’s latest figures show that, while Canadians got a 3.9 per cent boost to household incomes last year, nearly a complete point more than in the previous year, we have no mind to splurge by using it: Household spending increased in a significantly slower rate in 2015, while the rate of savings sped up. Using what middle-class transfer do the Liberals expect they are able to change that behaviour?
Even the fact that the Bank of Canada – unlike other central banks – still sits on considerable ammunition, should it need to juice growth, won’t deter Trudeau’s government from the resolve to break this country of their practice of preferring balanced budgets. The only real evidence that seems to matter to him is that our debt is not as bad as our G7 peers, which “leaves us with more flexibility,” Trudeau said.
“If i was sitting at 90 per cent debt to GDP, we probably would not be contemplating the kinds of things we know we will do,” he continued. Unfortunately, Canada’s gross financial government liability is more than 90 per cent, once you take into account provincial and municipal debt (all of it ultimately considered federally backed), and isn’t remote from that of the U.S. or U.K. It is, at roughly 95 percent of GDP, greater than at any time apart from the late ’90s, and right about where France’s was in 2008. France likely thought that manageable, then, too – until it had been walloped by an unforeseen global financial trouble. But something like that could never happen again. After all, Trudeau assured Wingrove, he’s carefully “balancing that fiscal responsibility that Liberals usually have had by having an knowning that to be able to grow we have to invest.” Obviously, some people, including the top minister, might be too young to remember that Liberals have also sometimes caused spending and deficits to operate dangerously amok. Maybe this what it really appeared as if just before they did.
