When it comes to nailing down Pierre Poilievre’s economic policy, it can be hard separating the real from the surreal.
There’s the love of cryptocurrency. There’s the too-clever-by-half “Justinflation” slogan. There’s the threat to make central bankers walk the plank.
When he launches into a 500-year-old history lesson on Henry VIII and “Old Coppernose,” you start to wonder how many cannabis shops are in Mr. Poilievre’s neighbourhood.
But once you sift through all the crazy, the new Conservative Leader’s economic priorities are pretty straightforward. Reduce inflation. Reduce the budget deficit. Reduce the swollen Bank of Canada balance sheet that (he argues) enabled the deficit and created inflation. When Mr. Poilievre talks about the need to “stop printing money” – which he does, and often – this is pretty much what he’s talking about.
But while Mr. Poilievre rails for the printing presses to be shut down, he either hasn’t noticed or doesn’t much care that the shutdown is well under way. The existing monetary and fiscal authorities (the Bank of Canada and the federal government, respectively) are already doing it.
Let’s start with monetary policy.
Mr. Poilievre contends that monetary policy is so far off the rails that if he were prime minister, he would fire the Governor of the Bank of Canada. He would order the replacement to “reinstate our low-inflation mandate” and refrain from quantitative easing (QE), a form of monetary stimulus that involves the central bank expanding its balance sheet by buying government bonds.
It’s pretty hard to argue that the Bank of Canada – which, for very good reason, is at arm’s length from elected governments dictating when, how and how much to change monetary policy – is pursuing a policy that ignores inflation. In the past six months, it has raised its key interest rate five times, by a total of three full percentage points, in one of the most aggressive efforts to quell inflation in the bank’s history.
Even a vociferous inflation-hater such as Mr. Poilievre would be hard pressed to suggest that harsher medicine is desirable.
Ditto the central bank’s balance sheet, which swelled by an astounding $450-billion in the first year of the pandemic as a consequence of the bank’s QE programs. Since then, the balance sheet has shrunk by more than $140-billion, as the bank has wound down its purchase programs and then, as of last April, put them in reverse. The balance sheet will continue to shrink as the central bank gradually unwinds the purchases it made during the crisis.
The bank refers to this process as “quantitative tightening” (QT); if QE “printed” money that was dumped into the economy, as Mr. Poilievre argues, then QT must be effectively removing it. If QE has been an inflationary force, QT is, therefore, a deflationary one. Our existing central bankers are doing precisely what Mr. Poilievre prescribes.
Meanwhile, the fiscal deficit has also gone into full-speed reverse, helped by a combination of a rapid economic recovery, tax windfalls from strong commodity prices and soaring corporate profits, and inflation (which, it turns out, does have some positive uses). Ottawa actually ran a $10-billion surplus in the first quarter of its 2022-2023 fiscal year – a bit misleading, as government spending tends to be tilted toward the end of the year, but still an enormous $47-billion improvement over the same period a year earlier.
Nominal gross domestic product – a measure of total economic activity that includes the impact of inflation, and is a close proxy for growth in government revenues – is on pace to come in about $300-billion higher than the government assumed this year. Costs will also certainly rise – the government gets hit by high inflation just like the rest of us, and the Canada Health Transfer to the provinces, which alone accounts for more than one-tenth of the federal budget, automatically increases in line with nominal GDP. But the revenue gains imply that the government could bring in a deficit roughly $15-billion lower than its original estimate of $58-billion.
That puts Ottawa about a year ahead of schedule on its deficit reduction. Based on last spring’s budget projections, even modest nominal GDP growth next year would bring the deficit down to about 1 per cent of GDP – pretty close to where it was in the years prior to the pandemic.
Now, it will certainly require some spending discipline to maintain that track, something for which this Liberal government is not renowned. Before the pandemic, program expenses under the Liberals grew an average of 6 per cent a year, and the government found ways to spend any unanticipated revenue gains. Last week’s announcement of an inflation-relief package, which included more than $3-billion in new spending, was a fresh reminder of that tendency.
But if you take the government’s fiscal projections at face value, the deficit is headed toward becoming a non-issue for all but the most dogmatic of balanced-budget advocates within a couple of years.
It appears, then, that there’s little that Mr. Poilievre would offer in terms of concrete action that wouldn’t look a lot like what is already under way. When it comes to the details, his argument boils down to one of degree, not policy direction. Whether he would admit it (even to himself) or not, the current policy makers are already headed where he wants to go. And they’re well ahead of his rhetoric.