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The Liberal Party’s plan to dive back into deficit in support of an ambitious infrastructure program has been months in the making, but party officials say the decision to borrow up to $10-billion a year to pay for it was only cemented in June.
Talk of a major infrastructure push has been percolating in the party as far back as its 2014 policy convention in Montreal. It featured guest speaker Larry Summers, the former U.S. treasury secretary who has warned against the “disastrous trend” of less and less government spending.
An economic advisory team met regularly over the past year and platform ideas were debated at a January caucus retreat in London, Ont. But it was not until June that Liberal Leader Justin Trudeau and his core campaign team agreed to the final details, leaving top caucus members in the dark for weeks.
The decision was announced in late August as part of a plan to nearly double infrastructure spending in the country over the next decade. The move goes against Canadian political orthodoxy as the Liberals gamble that voters will support a party that openly advocates deficits. It immediately became a lightning rod for attacks from the Conservatives and NDP, but the Liberals hope the pledge will ultimately help them break ahead in what is currently a tight three-way race for power.
Liberals say the advisory council of MPs and independent economists told Mr. Trudeau that deficits could be acceptable from an economic perspective provided that the federal debt as a share of the economy continued to decline. The spending also had to be large enough to have a positive impact on growth.
Economist Mike Moffatt, a member of the council, said he estimated that a deficit of up to $20-billion a year would be sustainable in the short term.
Mr. Trudeau has been telegraphing his thirst for a more activist government for years. But after the Conservatives’ April budget left little room for new spending, he faced two options: scale back the party’s infrastructure plans and balance the books or go ahead with the spending plan on the argument that borrowing cash has never been cheaper.
“The feeling emerged that while the main issue in the 1990s was government deficits and debt, the main issue today was languishing growth, inadequate job creation and the huge infrastructure deficit,” said John McCallum, a former bank economist who is running for the Liberals to keep his seat in Markham-Thornhill.
“So I think over the months, the feeling emerged that what was right for Canada was to do a big push on infrastructure.”
While it was not known at the time that Canada was in a technical recession, the growing signs of a weak economy influenced the decision to go with the more ambitious option.
“As it became clear that Canada was already in deficit – we believe – and clearly in recession, the case became stronger,” Mr. McCallum said.
In the end, Mr. Trudeau presented a plan to run deficits of up to $10-billion a year for two years, followed by a smaller deficit in the third year before balancing the books in 2019-20.
“The leader gave us his marching orders on the policy-development side that he wanted a real plan that was going to make a difference in people’s lives, and there was no way to do that, to give the economy what we believe it needs, without running a modest deficit in the short term,” said a senior campaign member.
The move allowed the party to lump a number of its initiatives – including investments in child care – into $60-billion in new infrastructure spending over 10 years.
The Liberals argue the plan offers a clear contrast with the Conservatives and NDP, which are both promising to keep Canada in the black. The party’s critics say it looks like Mr. Trudeau is scrambling.
“It’s complete fiscal ad-hockery,” said Conservative candidate Jason Kenney.
Polling data by Nik Nanos shows support for all three main parties is virtually unchanged from mid-August, before the Liberals made their announcement.
Mr. Nanos said the Liberals face a significant challenge in selling their platform to the country now that the government has confirmed that it was $1.9-billion in the black last year.
“It’s not playing out very well because we have a surplus,” Mr. Nanos said.
Dr. Moffatt, who teaches at the University of Western Ontario, said he supports the party’s decision to set $10-billion as a yearly maximum for the next two years.
“I’m no political strategist, but I think the important thing is just convincing people that the money will be well-spent,” he said in an interview. “I think people would prefer not to run a deficit, but if it’s, ‘Okay, we’re going to run a deficit and that means my commute is 15 minutes shorter,’ then I think people might be quite happy with that.”
Economic team geared to combat Trudeau’s inexperience
Liberal Leader Justin Trudeau surprised many by running his campaign on the economy with a message that growth comes before balancing books. But he makes sure part of the message is that he’s surrounded by an economic team.
That’s largely an effort to combat knocks on Mr. Trudeau’s inexperience, but also a bid to highlight experience that rivals in the NDP don’t have, in addition to new recruits with business and economics backgrounds.
Three former cabinet ministers, ex-finance minister Ralph Goodale, John McCallum, former Royal Bank economist, and Scott Brison, former public works minister and current finance critic, make up the experience factor. But they also provide a whiff of throwback, so the Liberals have pushed new recruits forward.
They include Bill Morneau, 52, the CEO of Morneau Shepell, a publicly traded human-resources outsourcing firm, who is the blue-chip Bay Street figure in Liberal ranks.
In Manitoba, there’s Jim Carr, 63, former president of the Business Council of Manitoba, and in Toronto, author and former financial journalist Chrystia Freeland, 47.
Some of the team is campaign show – Mr. Trudeau hustled former PM and finance minister Paul Martin onto the hustings, backed by more than 20 supposed economic-team members.
But a core group forged an identity on economic issues: pro-business Liberals with an interventionist agenda of infrastructure spending, middle-class tax cuts and, to make it possible, three years of deficits.
Mr. Morneau hinted at the tone during a Liberal convention in Februrary, 2014, when he said business knows you don’t cut your way to success; Ms. Freeland, co-chair of Mr. Trudeau’s council of advisers with Mr. Brison, led the wonkish work of building a policy direction. - Campbell Clark
How the Liberals plan to address key campaign issues
The Liberals would introduce a new tax rate of 33 per cent on income of more than $200,000. That would help fund a tax cut on income between $44,701 and $89,401, dropping the rate from 22 per cent to 20.5 per cent.
The Liberals would maintain income splitting for seniors, but cancel it for families with children under 18. The recent near-doubling of the Tax Free Savings Account annual contribution limit would also be cancelled. The Liberals support lowering the small-business tax rate from 11 to 9 per cent, but say they would ensure the cut is not used by wealthy Canadians as a way to avoid taxes.
The Liberals made a major policy splash near the midway point of the campaign, announcing they would run three years of deficits to finance a major spike in infrastructure spending. The party is promising $60-billion in new spending over 10 years on roads, bridges, transit and other projects. Mr. Trudeau said municipalities would set the priorities as to what gets done.
The party is planning to roll out further details on this plan throughout the campaign. Spending would be divided evenly into three categories: public transit, social infrastructure – including social housing, child care and hockey rinks – and green infrastructure, which includes flood protection, waste-water facilities and clean energy.
The party is leaving key details on energy and climate-change policy until after the election, arguing that decisions will be based on discussions with the provinces. Liberal Leader Justin Trudeau has promised federal cash for the provinces to help them implement their climate-change plans. The party promises to encourage renewable energy use across Canada.
The Liberals have not yet announced their manufacturing platform. But they have warned that NDP plans to raise the corporate tax rate will make it harder for Canada to attract manufacturing jobs.
The party is promising to balance the books in the 2019-20 fiscal year after three years of deficits that would help pay for infrastructure spending. The party insists that Canada’s debt as a share of the economy will continue to decline over that period. It also promises that the size of annual deficits will not exceed $10-billion.Report Typo/Error
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