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Deputy Prime Minister and Minister of Finance Chrystia Freeland responds to a question during a news conference, Aug. 20, 2020 in Ottawa.Adrian Wyld/The Canadian Press

In the eyes of Prime Minister Justin Trudeau, Chrystia Freeland is a finance minister ready and able to take the big, ambitious steps needed to rebuild Canada’s economy for the postpandemic world.

Now, his government just needs to figure out what those are and how many of them it can afford.

After she was announced as Bill Morneau’s replacement on Tuesday, Ms. Freeland signalled in very broad terms what sort of economic recovery she hopes to help steer – telling reporters that it needs to be “green,” “equitable,” “inclusive” and focused on “jobs and growth.”

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Two days later, the government announced $37-billion in new income supports, the bulk of it aimed at plugging gaps in an employment insurance system that were exposed or highlighted by this year’s mass joblessness. But that was just a hint of where Mr. Trudeau’s Liberals want to go.

Liberals close to Mr. Trudeau and Ms. Freeland speak of their desire to seize a historic moment to reshape the country’s industry, work force and social supports. They believe that governments around the world are untethered from previous perceived limitations around debt accumulation because of the scale of public spending already needed to combat COVID-19 and the minimal borrowing costs owing to extremely low interest rates. And they want to take full advantage of what they see as an opportunity to reposition Canada for the 21st century.

Advocates for various forms of recovery spending are jockeying with each other for position, while more conservative-minded critics fret the Liberals are losing sight of the basic goal to establish a path back to stability and may fail to heed fiscal risks going forward.

The Liberal government aims to provide some indication of its plans in a Speech from the Throne in late September, then add more detail in an economic update later in the fall followed by a budget in the first half of 2021 – provided their minority government survives long enough.

That gives them only about a month to start making difficult decisions about economic priorities that, for all their talk, they have mostly put off since the pandemic halted the economy as it had previously existed.

For her part, the new Finance Minister has given some earlier impressions of where her own policy priorities lie. Concern around income inequality was one of the factors that drew her into politics. Conversely, environmental advocates have gotten the impression up until now that Ms. Freeland – who grew up in Alberta and takes seriously her role as the closest thing her government has to a minister from the oil-reliant province – is less enthused than many other federal ministers by their proposals for green-recovery spending.

But as of now, she and Mr. Trudeau are setting expectations that they’ll aggressively pursue both of those policy goals and plenty else besides – a cause for encouragement among some observers and mounting concern among others.

Until the past couple of weeks, government officials brushed off questions about long-term recovery planning as premature. They cited the need to remain squarely focused on immediate effects of a virus that remains a live threat and the difficulty of knowing when the crisis will end. They dismissed comparisons to other countries, especially in Europe, that had already begun rolling out large spending packages to finance the rebuild.

Behind the scenes, some preliminary work was done by a trio of cabinet members – Environment Minister Jonathan Wilkinson, Infrastructure Minister Catherine McKenna and Heritage Minister Steven Guilbeault – on potential ways to use stimulus policies to help transition to a low-carbon economy. But they were tasked more with taking inventory of those options than narrowing them down.

The Liberals have not yet seriously grappled with the long-term fiscal ramifications, particularly how Canada would deal with a rebound in interest rates. After abandoning their 2015 campaign promise of only three years of limited deficits, they began to use a target, dubbed a fiscal anchor, of stabilizing the ratio of net federal debt to gross domestic product. That metric was dropped in July. They are now suggesting debt-to-GDP doesn’t matter as much as previously because of lower debt-servicing costs, but they haven’t established a replacement metric.

The recent signs that the Liberals are ready to start working through all this have included the enlistment of Mark Carney, the former governor of the Bank of Canada and the Bank of England, to provide advice on recovery planning. But the arrival of Ms. Freeland as Finance Minister seems to be an even clearer indication.

Among the top reasons for Ms. Freeland’s appointment, according to a senior official in the Prime Minister’s Office, is her relationship skills – especially when it comes to dealing with provincial governments, with whom she worked harmoniously while serving as intergovernmental affairs minister. Many of the bigger things Ottawa wants to do going forward, such as expanding social programs, fall outside what is normally federal jurisdiction.

Another senior official said that her political communication skills, considered superior to Mr. Morneau’s, are needed to make the case for a bigger spending and more interventionist approach to economic planning than Canadians have seen from their governments in generations. (The Globe and Mail agreed not to disclose the officials’ names so that they could speak freely.)

Although Ms. Freeland has, to this point, been considered on the relatively conservative side of the Liberals’ left-leaning caucus, there was much less emphasis placed on her ability to fill the finance minister’s traditional role of being the unpopular person at the cabinet table who pushes back against colleagues’ spending demands. That seems to further point toward the floodgates remaining open past the current emergency period and into the economic recovery.

Even so, a government that last month had a forecasted budgetary deficit of $343-billion for this year alone – with new emergency expenditures since announced, including this week’s $37-billion – will presumably still have to make some difficult choices about what forms of recovery spending it should prioritize.

Among the biggest potential tension points going forward is how the government balances its determination to undertake legacy-defining green initiatives with other ways it wants, or is expected to, reboot a pandemic-ravaged economy.

Even without many details, environmentalists are encouraged by the government’s continually expressed commitment to clean-economy transition. And they’re not short on ideas for how Ottawa might be able to merge relatively short-term job creation goals with longer-term transition to a lower-emissions economy.

Among the policy options promoted in recent reports by environmental think tanks, and enjoying momentum in green-policy circles, are major investments in retrofitting buildings to reduce fossil fuel reliance, creating charging infrastructure for electric vehicles and upgrades to energy grids.

There are also plenty of emerging sectors where clean-economy advocates see potential for Canada to compete internationally – from hydrogen production to electric-bus manufacturing – if government is willing to give them a domestic boost.

Those advocating for such policies don’t present it as a binary choice between them and other priorities. Sarah Petrevan, policy director for Clean Energy Canada, suggested there is room for both that focus and other goals such as addressing inequality, saying that the best economic recovery measures should focus on “where the global economy is headed, and that’s toward a clean and green future.”

But some other observers worry other necessary components of a rebuild will get short shrift.

For technology entrepreneur Jim Balsillie, the government should be focused on a prosperity agenda that reboots Canadian trade, investment and intellectual policy to take into account the realities of the digital economy.

Unemployment was low before the pandemic hit, but Mr. Balsillie argues that the quality of jobs had been deteriorating, demonstrated by stagnating GDP per capita. To his eyes, the novel coronavirus and the resulting economic downturn have underscored the urgency of moving now to bolster Canada’s competitiveness in the digital age.

“It’s a catalyst, it’s an accelerant,” said Mr. Ballsillie, who is not opposed to a green agenda but said the clear priority must be on reviving Canadians’ economic prospects.

Part of the explanation for that stagnation is the winner take mostly all aspect of the digital economy, Mr. Balsillie said. He asks, who would you rather be – an Uber driver or the programmer that created Uber? The first scrambles to make a living, the second enjoys massive wealth. He said the challenge is similar for a country such as Canada which built its 20th-century economy by getting a slice of prosperity from branch plants.

Making that transition means a new approach to trade agreements, enabling smart cities, possibly creating publicly owned data trusts and most importantly, fostering domestic digital corporate champions. By itself, executing that strategy would be an ambitious agenda for any government.

Economist Armine Yalnizyan supports green investments, but she is also worried about a lack of focus on immediate economic concerns. She sees a pressing need for federal spending and intervention to ensure that child-care centres and schools are safe enough for children to return this fall, allowing their parents – most often, mothers – to return to work. “That’s Job 1 if you want to resume anything close to normal,” she said.

That strategy would be expensive – some child-care groups have estimated the cost for a national daycare system to be as much as $10-billion a year – and would involve complex negotiations with the provinces. “That will take spending and a vision,” Ms. Yalnizyan said.

Perrin Beatty, president and chief executive officer of the Canadian Chamber of Commerce, sees a more direct conflict between the government’s green plans and economic recovery. Like Mr. Balsillie, he points out that economic growth was already tepid before the coronavirus. The government needs to be “laser focused” on restoring private-sector growth – including in the resources sector, Mr. Beatty said. “We can’t spend and regulate our way out of the challenges that we’re facing.”

The mounting national debt – projected to top $1.2-trillion by March – is also worrying, adds Mr. Beatty, who as a federal Progressive Conservative cabinet minister in the 1980s and 90s had a first-hand view of the perils of runaway debts and deficits.

The growing shadow of the federal debt is also a major worry for Dan Kelly, president and chief executive officer of the Canadian Federation of Independent Business, particularly as the government tees up several big-ticket plans simultaneously. Even more worrying than major outlays for a new green agenda, Mr. Kelly argues, are the expansion plans for employment insurance and newer income-support programs.

The Liberals rolled out the first phase of those plans on Thursday, making EI easier to obtain, as well as setting a floor for benefits in changes designed to last a year. That, along with extended emergency benefits, publicly funded sick days and expanded benefits for caregivers and new parents adds up to the new $37-billion.

Contributing to that cost is a two-year freeze in EI premiums for employers and employees, giving some policy heft to Mr. Trudeau’s promise not to raise taxes to deal with pandemic costs. Mr. Kelly welcomes that freeze, but said he’s worried how costly permanent reforms will be and what effect they will have on the ability to find and retain workers. The CFIB has highlighted complaints from small business that the original Canada Emergency Response Benefit was discouraging employees from returning to work, citing both the size of the $2,000 monthly payment (replacing more than a minimum-wage income in some cases) and the structure, which cut off benefits altogether if recipients earned more than $1,000 in a month. The lack of a requirement for recipients to look for work was another concern.

Economists have not found any evidence of widespread work avoidance, and Employment Minister Carla Qualtrough rejected the notion when asked about disincentives on Thursday, saying the government trusts that Canadians wanted to get back to their jobs. Yet, the changes announced this week do deal with the criticisms of CERB. They include a reduction of weekly payments to $400 from $500; allowing recipients to earn $58,800 on an annual basis before benefits are completely cut off; and requiring that they look for work.

Still, some concerns remain for Mr. Kelly and others, including a much lower threshold for qualifying for payments: Now, workers can receive as much as $10,800 in support payments after working just 120 hours and earning $5,000 in employment income.

The stakes are immense, if the government isn’t focused, Mr. Kelly said. “If that’s botched, goodbye recovery.”

There is little doubt that Ms. Freeland will be very highly attuned to all of these competing demands and just about any other concern about how Ottawa approaches recovery planning.

While Mr. Morneau developed a reputation for being somewhat aloof from those outside government, his successor is quite the opposite.

For instance, Mr. Kelly said while he never heard directly from Mr. Morneau during his nearly five years as finance minister, Ms. Freeland called him during her first day in the new post.

And in contrast to many ministers who recite government talking points to those outside it, she is known for engaging with outsiders on their level and taking their perspectives back to the cabinet table.

That helps explain the strong provincial relationships – which have caused the likes of Ontario Premier Doug Ford, hardly the Liberals’ ideological brethren, to publicly rave about her – that Mr. Trudeau hopes to now leverage toward joint spending programs.

Her genuine engagement with provincial colleagues and her responsiveness to them while intergovernmental affairs minister – a senior member of Mr. Ford’s government said that in some instances during the pandemic she received spending requests and came back to them within minutes with answers – helped Ottawa advance its own priorities. The same Ontario official said Ms. Freeland was able to use the trust she had accumulated, citing the inclusion of guaranteed sick days in a federal-provincial spending agreement. Mr. Ford had initially opposed the measures in deference to employers, even though it would not have cost the province financially. (During Thursday’s announcement of employment supports, Ms. Freeland went out of her way to thank a couple of other premiers, Manitoba’s Brian Pallister and British Columbia‘s John Horgan, for helping get the sick-day policy done.)

It is possible that sort of quid pro quo could play out on a much larger scale, with both nation-building and debt-accumulation impact. She could, for example, deliver an increase to the Canada Health Transfer that the provinces are seeking in return for acceptance of national programs and standards on long-term care or child care.

Particularly if the Liberals are aiming for a more interventionist economic strategy, as appears to be the case, Ms. Freeland can be expected to be similarly engaged with key players in industry. That was her approach during the Liberals’ first term, when she led Canada’s side of NAFTA renegotiations while serving as global affairs minister, and quickly gained a reputation for being directly accessible and highly responsive to business leaders, organized labour and other interests.

Much of this could see her stepping beyond the finance minister’s usual turf. Intricate involvement in intergovernmental affairs could be left to the Intergovernmental Affairs Minister (now Dominic Leblanc); liaising with industry mostly to the Industry Minister. But Ms. Freeland’s approach is typically to put herself wherever the action is, which is evidently what Mr. Trudeau wants in the person taking the lead on recovery planning.

Her appointment also suggests that the Liberals may want a finance minister who is not overly aligned with the Finance Ministry.

There was some perception (although not universally) within government that Mr. Morneau was too beholden to relatively conservative finance bureaucrats. That lead to overly cautious policy roll-outs during the pandemic, such as the one involving a wage subsidy for employers that was initially too modest to have much relevance. Ms. Freeland, by contrast, has prided herself on not being deferential to the ministries where she has served, pointedly saying while global affairs minister that her job was to represent Canadians – not just her department – to the world.

A minister inclined to challenge Finance Department orthodoxy, and be more responsive to those expressing need for government spending than to officials trying to slow things down, may be politically helpful. But it also contributes to questions about how the Liberals will set fiscal standards that they were already shifting before the pandemic.

One of the biggest accomplishments of Mr. Morneau’s tenure as finance minister was not any particular spending initiative, but his success in recalibrating the boundaries of public debate over deficits. Ms. Freeland faces an even more daunting challenge in convincing Canadians that the mounting federal debt – growing faster than since the height of the Second World War – is not a reason to scale back the government’s ambitions.

The ratio of Canada’s net debt to GDP has shot up over the past five months, climbing to 49 per cent as of early July, from 31 per cent in December, 2019. While that ratio is still well short of the levels reached during the Second World War and the debt crisis of the 1990s, it doesn’t include what is certain to be additional spending this fall (including the $37-billion in income supports announced this week) and several years of significant deficits.

Despite the increase, Canada is still relatively better off than most advanced economies, according to Kevin Page, president and CEO of the Institute of Fiscal Studies and Democracy at the University of Ottawa. And it’s likely that with recurring waves of COVID-19, simply stabilizing the economy will create significant demands on public finances. “Government is going to have to step up,” said Mr. Page, who was a senior public servant and the first Parliamentary Budget Officer.

Even just sticking with the July figure, the deficit and debt are at levels that would have been previously inconceivable. Heading into the 2015 federal election, balanced budgets were very much political orthodoxy. The Conservatives under Stephen Harper, unsurprisingly, were committed to eliminating red ink. But the New Democrats, then led by Tom Mulcair, were also balanced-budget enthusiasts, although with a much different set of taxing and spending priorities.

The Trudeau Liberals made a strategic gamble that the public was prepared to accept deficit spending, promising a three years of deficits less than $10-billion before returning to a balanced budget in fiscal 2019-20. That gamble paid off, with the New Democrats outflanked, helping to propel the Liberals into office.

But the limited deficit approach had a limited shelf life, just four months. By February, 2016, Mr. Morneau was instead setting a goal of stabilizing debt as a proportion of Canada’s GDP. That meant the government envisioned running permanent, even growing, deficits so long as the economy grew more quickly.

Even before the coronavirus crisis, the government was loosening its fiscal anchor, with Mr. Morneau setting targets that allowed for higher deficits in his December, 2019, fiscal update. In the limited fiscal update last month, the debt-to-GDP goal had disappeared altogether. Mr. Morneau said the government would “talk more about what the path forward is in the fall,” but didn’t get more specific than that.

Some left-leaning economists are now arguing that the government should set no goal at all, that the size of deficits and the national debt do not matter. Interest rates are at unprecedented low levels, reducing the government’s borrowing costs significantly. Virtually all of Canada’s debt is denominated in Canadian dollars (as of March, 2020, just 2 per cent of the federal government’s market debt was denominated in foreign currencies) meaning that interest payments circulate within the economy. Inflation is low, meaning that for now, the massive increase in borrowing (and the money supply) is not pushing up prices.

For a government looking to borrow billions to fund its go-big agenda, the timing is ideal. But what happens when those ideal conditions dissipate? “That’s the big question,” said Alexandre Laurin, director of research at the C.D. Howe Institute.

An increase in inflation, for instance, would be an early warning sign for the government to cut back on deficit spending. If ignored, interest rates would have to increase to dampen price pressures. Those higher rates could in turn dampen economic growth. And that would leave the government with stagnant growth, inflation and rising debt costs – a return to the fiscal quagmire of the 1970s and 80s. “There’s an instability risk that’s enormous,” Mr. Page said.

Plus, there is the unknown question of how international lenders and rating agencies might react to a government planning large and unending deficits, Mr. Laurin pointed out.

Days into the job, Ms. Freeland is not appearing overly concerned about the opinion of bond markets, adding in a press conference on Thursday that the Canadian dollar has strengthened during the pandemic. “These are not signs of a lack of faith in the Canadian economy,” she said. “Quite the contrary.”

Far from wanting to hit the brakes, the new Finance Minister has her foot on the accelerator, saying that day that expansion of sick leave, caregiver and maternity benefits is just a first step in spending designed to help Canadians, particularly women, rebound from the current crisis.

“Watch this space,” Ms. Freeland vowed. “There is a lot more to come.”

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