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Justin Trudeau laid out a vision for faster growth and greater fairness. How well has the economy actually responded? Patrick Brethour reports

Justin Trudeau speaks to the crowd outside Rideau Hall after he was sworn into office as Canada's 23rd Prime Minister, on Nov. 4, 2015.BLAIR GABLE/Reuters

Flush with promises and promise, a beaming Justin Trudeau laid down the markers for his soon-to-be government in his October, 2015, election victory speech.

“You gave me clear marching orders. You want a government that works as hard as you do, one that is focused every minute of every day on growing the economy, creating jobs and strengthening the middle class,” Mr. Trudeau said. ”One that is devoted to helping less fortunate Canadian families work their way into the middle class.”

Mr. Trudeau and his new Liberals shrugged off the constraints of fiscal orthodoxy; instead, there would be modest deficits to galvanize Canada’s moribund economy. Billions of dollars in new spending to reduce poverty among children and seniors. Higher taxes on the “wealthiest 1 per cent,” as the Liberals sounded the alarm over economic inequality.

More prosperity, and more fairness. That was the Liberal pitch, the winning formula of six years ago. Those were the marching orders.

Have the Liberals carried out those orders? Any answer must come in two parts: the pre-COVID-19 years of 2015 to 2019, and then the past 18 tumultuous months. And whatever the verdict on the Liberals, the pandemic will force whichever party that wins Monday’s election to confront some daunting new challenges.

Economic growth

The main Liberal critique of the Stephen Harper years was that Ottawa was being penny wise and pound foolish. Or, in more technical terms, the Conservative insistence on returning to a balanced budget quickly slowed the economic rebound from the 2008-09 financial crisis and hindered job growth.

Limited deficits for a short time would be a catalyst for economic growth, the Liberals argued in 2015. But the plan to run deficits for three years before returning to balance quickly morphed into a strategy for larger and permanent deficits when the party assumed power, with the goal of stabilizing the debt as a proportion of gross domestic product.

So, the Liberals did make good on their pledge to abandon the balanced-budget goal that had been dogma in Ottawa since the Jean Chrétien era.

But there is mixed evidence, at best, that those deficits did much to change the rate of economic growth.

It is true that inflation-adjusted GDP growth did accelerate after 2015, the final year of the Harper government. In that year, GDP rose by a paltry 0.7 per cent. In 2017, that growth rate more than tripled: Real GDP climbed by 3 per cent, before cooling off somewhat in the next two years.

Rebekah Young, director of fiscal and provincial economics at Bank of Nova Scotia, says Canada’s economy expanded largely in line with those of other advanced countries from 2016 to 2019, with an average growth rate of 2.1 per cent in real GDP, just ahead of the 2-per-cent average. However, Canada trailed the United States and Australia, a comparable mid-sized economy that, like ours, is also dependent on natural resources.

Ms. Young notes that those years were volatile times, with the Trump administration destabilizing trade relations – the renegotiation of NAFTA being a prime example – and commodity prices gyrating. “The Liberal government was navigating the economy through a storm,” she said.

Much of Canada’s economic surge in those years has more to do with population growth and the business cycle than any policy-induced prosperity.

Once the growth figures are adjusted for population increases, they start to look a little less impressive. Adjusted for inflation and population, GDP fell 0.1 per cent in 2015 and in 2016, the first full year of Liberal rule. There was a jump in 2017, when real per capita GDP rose 1.8 per cent. But by 2019, economic growth had cooled considerably, with just a 0.4-per-cent expansion in GDP after accounting for inflation and a growing population.

Then there is the business cycle to take into account: The Liberals entered office with the economy gathering momentum. The right-leaning Fraser Institute has attempted to account for that factor by looking at pre-recessionary periods over several administrations, stretching back to the Progressive Conservative government of Brian Mulroney in the 1980s.

The institute calculated the average growth rate in per capita real GDP for the four years prior to each recession. On that basis, the Trudeau era emerged as a clear laggard, with average growth of just 0.8 per cent from 2016 to 2019.

By contrast, per capita real GDP expanded nearly twice as fast during the Harper years of 2011 to 2014. Earlier business cycles from 2005 to 2008, 1997 to 2000 and 1987 to 1990 also outstripped the growth rates of the first four years of the Trudeau Liberals.

Jason Clemens, executive vice-president of the Fraser Institute, says those growth figures demonstrate that the Liberal philosophy of running deficits to boost the economy simply did not work.

But economist Jim Stanford, director of the left-leaning Vancouver-based Centre for Future Work, says the transition of the Canadian economy away from fossil fuel production accounts for some of the deceleration in GDP growth from 2016 to 2019, particularly when compared with the previous decade.

There are external events that weighed on the Canadian economy, but the numbers are clear – the Liberals did not succeed in accelerating growth rates.

Jobs

The Trudeau government can point to historic gains in the job market. The unemployment rate fell to just 5.7 per cent in 2019 for workers 15 years of age and older, the lowest level on record, and down from 6.9 per cent in 2015.

Mr. Clemens contends that the Liberals’ jobs-growth performance is middling, because participation rates have also been low (meaning there were relatively fewer workers available in the economy). However, Mr. Stanford counters by pointing out that the years-long decline in the participation rate stopped during the Liberal years, meaning the drop in the unemployment rate was not simply a result of workers exiting the labour force.

Despite the tighter labour market under the Liberals, earnings stagnated. Adjusted for inflation, average weekly earnings including overtime rose by an average of 0.4 per cent a year from 2016 to 2019, much slower than the annual gains of 0.66 per cent in the preceding four years of Conservative government.

Mr. Stanford says the rise of the gig economy explains at least some of the disconnect between falling unemployment – which should lead to rising wages – and the reality of stagnating pay during the first four years of Liberal government.

Still, the Liberal record on jobs growth is largely positive: a falling unemployment rate and a halt to the trend of a declining participation rate.

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Economic inequality

The Liberals entered office with a focus on reducing poverty among children and the elderly. Plus, the party gave a nod to the growing unhappiness over wealth inequality by promising to raise income taxes on top earners while cutting those for middle-class Canadians.

The Trudeau government launched the Canada Child Benefit in 2016, a tax-free monthly payment targeted at low- and middle-income families. The new program replaced a less generous taxable benefit put in place by the Conservatives, as well as some other existing supports to families with children. The Liberal measure had a significant effect in reducing poverty among children, says David Macdonald, senior economist for the left-leaning Canadian Centre for Policy Alternatives.

Poverty rates fall for kids, stall for seniors

Percentage considered low income, 1995-2019

Low-income measure after tax

Market-basket measure, 2018 base

20%

15

10

5

Trudeau

gov’t

0

‘95

‘00

‘05

‘10

‘15

‘19

Persons under age 18

20%

15

10

5

Trudeau

gov’t

0

‘95

‘00

‘05

‘10

‘15

‘19

Persons 65 and over

THE GLOBE AND MAIL, SOURCE: statistics canada

Poverty rates fall for kids, stall for seniors

Percentage considered low income, 1995-2019

Low-income measure after tax

Market-basket measure, 2018 base

20%

15

10

5

Trudeau

gov’t

0

‘95

‘00

‘05

‘10

‘15

‘19

Persons under age 18

20%

15

10

5

Trudeau

gov’t

0

‘95

‘00

‘05

‘10

‘15

‘19

Persons 65 and over

THE GLOBE AND MAIL, SOURCE: statistics canada

Poverty rates fall for kids, stall for seniors

Percentage considered low income, 1995-2019

Low-income measure after tax

Market-basket measure, 2018 base

20%

20%

15

15

10

10

5

5

Trudeau

gov’t

Trudeau

gov’t

0

0

‘95

‘00

‘05

‘10

‘15

‘19

‘95

‘00

‘05

‘10

‘15

‘19

Persons under age 18

Persons 65 and over

THE GLOBE AND MAIL, SOURCE: statistics canada

Since 2015, poverty rates for children (aged 18 and younger) have declined markedly, both when measured by purchasing power and in relation to the rest of the population. The low-income measurement shows how many children live in households with less than 50 per cent of adjusted median household income. It’s a relative measure, so a household could shift to low-income status if its income did not grow as fast as the median.

From 1995 to 2015, the low-income measure of child poverty barely budged, edging down to 15.2 per cent from 16.3 per cent of Canadians aged 18 and younger. But from 2016 to 2019, that percentage declined sharply, falling to 11.4 per cent – the lowest level on record.

However, Katrina Miller, program director at the Broadbent Institute, a social democratic think tank, says the problem of child poverty remains entrenched. “There’s nothing that gives us optimism that we’re headed in the right direction.”

The inroads against child poverty were even greater using the market-basket approach, which measures the purchasing power of households for a bundle of goods and services representing what Statistics Canada calls a “modest, basic standard of living.”

As the Liberals took office in 2015, 16.4 per cent of Canadian children lived in households that fell short of that standard of living. By the end of 2019, the proportion had fallen to 9.7 per cent.

The Liberal record on reducing poverty among seniors is not so clear-cut. Over several decades, successive federal governments have boosted the incomes of low-income seniors to lift them out of late-in-life poverty. By 2015, 14.3 per cent of Canadians aged 65 and older were considered to be poor under the relative low-income measure, less than half the proportion of 1976.

But seniors lost ground during the first four years of Liberal government, despite changes that increased the generosity of the Guaranteed Income Supplement, paid to the poorest of elderly Canadians. By 2019, 15.2 per cent of seniors were considered to be low income – an increase from the final year of the Harper government.

Under the market-basket measure, however, seniors were somewhat better off, with 5.4 per cent deemed low-income in 2019, down from 7 per cent in 2015. The difference between the two measures comes down to the poorest seniors enjoying some modest gains in income – but not as much as the rest of the population.

The Liberals have further raised payments to seniors during the pandemic, including new increases to the GIS. But one of their most significant decisions was made six years ago, namely, the move to cancel the Conservative plan to gradually raise the age of retirement to 67 from 65 between 2023 and 2029. If the Liberals hadn’t reversed that decision, it would likely push some young seniors into the ranks of the poor, until they reached 67 and became eligible for the OAS and GIS.

The rich get (a little) richer

Share of total wealth in Canada by family

income grouping, calendar years

 

2016

 

2019

80%

60

40

20

0

Top

1%

Top

20%

Middle

40%

Bottom

40%

THE GLOBE AND MAIL, SOURCE: HIGH-NET WORTH

FAMILY DATABASE; PARLIAMENTARY BUDGET OFFICER

The rich get (a little) richer

Share of total wealth in Canada by family income grouping,

calendar years

2016

2019

 

 

80%

60

40

20

0

Top 1%

Top 20%

Middle 40%

Bottom 40%

THE GLOBE AND MAIL, SOURCE: HIGH-NET WORTH FAMILY

DATABASE; PARLIAMENTARY BUDGET OFFICER

The rich get (a little) richer

Share of total wealth in Canada by family income grouping, calendar years

2016

2019

 

 

80%

60

40

20

0

Top 1%

Top 20%

Middle 40%

Bottom 40%

THE GLOBE AND MAIL, SOURCE: HIGH-NET WORTH FAMILY DATABASE;

PARLIAMENTARY BUDGET OFFICER

Ms. Miller says that, in her view, wealth inequality is a more important question. A 2020 analysis by the Parliamentary Budget Officer showed that wealth distribution became slightly more skewed during the Liberal administration: The top 1 per cent of richest families accounted for 25.7 per cent of national wealth in 2019, up from 25.6 per cent in 2016.

Despite some tinkering with tax rates, the Liberals have not taken much action on that inequality. But the party has promised to tighten some loopholes for high-income taxpayers in the current campaign.

Deficits and debt

A key driver of the Liberal victory in 2015 was the party’s willingness to veer away from the political consensus for balanced budgets, a dividing line between Mr. Trudeau and his Conservative and NDP rivals.

During that campaign, the Liberals promised a three-year run of limited deficits, returning to a modest surplus in fiscal 2019-20 (Ottawa’s fiscal year runs from April 1 to March 31). That did not happen. By the time of its first budget in the spring of 2016, the Trudeau government had scrapped the pledge for limited-run deficits in favour of keeping the size of the national debt flat relative to the economy.

That meant that the budget would never need to be balanced, and spending could rise as the economy expanded. For the most part, the Liberals kept to that goal. Ottawa’s revenues, as a percentage of GDP, rose only modestly under the Liberals, edging up to 15 per cent in fiscal 2018-19 from 14.3 per cent in 2014-15. Reflecting the new government’s tolerance for deficits, spending expanded more as a proportion of the national economy, rising to 15.6 per cent in 2018-19 from 14.4 per cent in 2014-15.

Thorsten Koeppl, professor of economics at Queen’s University, characterizes the deficits from 2016 through 2019 as insignificant, given the relatively low debt levels in the prepandemic years.

Mr. Stanford agrees with that assessment, saying the budget deficits of 2016 to 2019 had a negligible influence on the pace of economic growth. “The deficits in that era were macroeconomically irrelevant,” he said, adding that the political debate of two years ago about the need to balance the federal budget now seems anachronistic. “It seems quite quaint to worry about the specific year you get back to pure balance.”

Other observers, including Mr. Clemens, say Canada’s unremarkable economic performance during the Trudeau years undermines both the fiscal and political case for chronic deficits.

And Prof. Koeppl warns the massive deficits of the past two years mean there needs to be a serious debate about how to rebuild the federal government’s fiscal firepower for the next economic crisis.

“It’s a much tougher question going forward,” he says.

The pandemic and beyond

A global health and economic crisis was not part of Mr. Trudeau’s marching orders in the fall of 2015. But the emergence of the coronavirus, the resulting economic freefall and Ottawa’s aggressive fiscal response proved to be a high-stakes stress test of the Liberals’ economic performance of the previous four years.

The single most important factor was that the Trudeau Liberals had largely preserved the fiscal capacity built up over the previous two decades, since Mr. Chrétien and Paul Martin had steered Canada’s finances away from a collision course with bond markets.

A different government might have opted for tighter control of spending, but the relatively modest deficits of 2016 to 2019 meant that Canada’s debt-to-GDP ratio hovered just above 30 per cent as the pandemic struck.

That left the federal government with an enormous capacity to spend, and spend it did. Ottawa’s deficit soared to $334.7-billion in 2020-21, a 12-fold increase from 2018-19. The Parliamentary Budget Officer predicts the deficit will fall to $138.2-billion this fiscal year, on its way to $24.6-billion in 2025-26.

The PBO’s figures don’t take into account any promises the Liberals and others are making on the campaign trail. But the platform costing from the Liberals projects a similar trajectory for the deficit, with a shortfall of $32-billion by 2025-26. However, the Liberals would amass an extra $70-billion in debt along the way beyond the baseline projected by the PBO, as well as raise taxes, for the most part on wealthy individuals, and banks and insurance companies.

Still, the Liberal plan would send the debt-to-GDP ratio on a slow downward slide, falling to 49.2 per cent in 2025-26 from 51.2 per cent in the current fiscal year. And the Liberals say they are committed to continuing to reducing the debt as a share of the economy.

At the languid pace outlined in their costing document, it would take many years and mandates to return the debt-to-GDP ratio to prepandemic levels. Nevertheless, the Institute of Fiscal Studies and Democracy at the University of Ottawa said the Liberal plans “would ensure that long-term fiscal sustainability is maintained.”

Scotiabank’s Ms. Young said she gives the Liberal federal government “relatively top marks” for its handling of the initial challenges of the pandemic, particularly in choosing not to withdraw income supports prematurely.

Now, she says, the converse is the key question: Can the next government wind down fiscal support in a timely way?

Prof. Koeppl says Ottawa needs to focus on bolstering its balance sheet, in order to ensure Canada has the ability to counter another pandemic-like cataclysm. “What if the next crisis hits, and we are tapped out?” he asked.

On the other hand, there remain a number of enormous challenges that the Liberals have yet to tackle, problems that are as costly as they are intractable.

The provinces are demanding tens of billions of new dollars in annual health care funding, in part to cope with the accelerating aging of the population.

The looming demographic crunch will also pinch the labour market. The Liberals’ plans for expanded and cheaper nationwide child care would help. But the party has yet to propose more aggressive ideas for boosting the ranks of Canadian workers. One obvious – and off-brand – option: reinstate the increase in retirement age.

Then there is the wild card of climate change, and the costs of the transition away from fossil fuel dependency, as well as adaptation to severe weather events.

The biggest economic challenge of all, and one conspicuously missing from all parties in the current campaign, is a clear-eyed growth agenda that would aim to boost Canada’s productivity and prosperity over the long haul, rather than simply dividing up the country’s wealth more equitably or goosing GDP in the short run.

Meeting that challenge would mean, to borrow a phrase, being focused every minute, of every day, on growing the economy.

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