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The Trudeau government has four things it wants you to take away from Finance Minister Bill Morneau’s fall economic update. One, the economy is strong. Two, the fiscal situation is strong. Three, middle-class Canadians are getting a bigger slice of the pie. And four, President Donald Trump’s slashing of U.S. corporate-tax rates poses a challenge for Canadian competitiveness and prosperity – but it’s a challenge the Liberals have a plan to address.

The government is mostly right about the first three. The fourth item? It’s complicated.

It would be hard to argue the economy isn’t doing well. When the Liberals came into office, the unemployment rate was already at a relatively low level of 7.1 per cent; it’s now below 6 per cent, a number not seen in decades. That tight labour market is also translating into wage growth, particularly at the low end of the income scale.

But the Liberals can’t take all the credit, or even much of it. Canada’s recent economic health is a function of a global economy that has been advancing since the Great Recession.

It’s now been a decade since that recession, which means the economy is near its peak. This growth cycle is getting long in the tooth. And that has a lot of people asking why, in such good times, the Liberals ran a deficit of $19-billion last year and are promising deficits of roughly the same size in each of the next three years.

All else equal, it would be better if the budget were balanced. But the government’s claim that its fiscal house is in good shape is, for now, largely correct. Ottawa’s deficits are small enough that the debt burden is decreasing, not rising. The all-important debt-to-GDP ratio, which measures the debt relative to the size of the economy, is low and falling.

And Canada goes to the head of the class when graded on a curve. Mr. Trump’s tax cuts promise years of deficits that are relatively four times as large as Ottawa’s. Washington’s debt-to-GDP ratio is already almost three times as high as Canada’s, and rising.

The Liberals are also correct that at least one group of Canadians, namely middle- and lower-income families with kids, have more money in their pockets.

That’s in part because the Liberals in 2016 cut taxes for the tax bracket covering income between $46,605 and $93,208, while spending more on child benefits for lower- and middle-income families, via the Canada Child Benefit.

As a result, a family with two kids and two working parents, with a combined income of $110,000, has seen its net income-tax burden fall by about $2,000. According to a recent OECD study, when child benefits are factored in, an average-income Canadian family with children pays far less in income taxes than an average American family.

Those lower middle-class tax burdens are being paid by higher taxes on top earners, and deficit spending.

But that’s all past and present, and it brings us to the challenge for the future: Mr. Trump’s dramatic reduction in American business-tax rates. The move threatens to make Canada a considerably less attractive place to invest, which threatens the sunny economy financing Liberal policy.

Ottawa’s response could have been to lower its business-tax rates. Many in the business community want that. But it’s worth noting that business investment in Canada has consistently lagged our G7 peers, even though we have low corporate-tax rates relative to the rest of the G7, and until recently had markedly lower rates than the United States.

Instead, Mr. Morneau plans to dramatically increase the first-year depreciation rate for businesses investing in capital assets. The idea is to incentivize a business looking to make a capital investment to make it in Canada.

The cost is expected to be nearly $5-billion next year and less each subsequent year. In other words, this is a short-term response to a potentially long-term problem. And its uncertain what the result will be.

But Mr. Morneau also raised another intriguing idea to boost Canadian competitiveness, which deserves to be fleshed out. He wants to create a mechanism to review all Canadian business regulations, to ensure that when government regulates, it does so as efficiently as possible. The goal is to get the needed regulatory bang, whether it’s protecting the environment or consumers, while costing business the least time, aggravation and bucks.

It’s an idea that needs to be acted on. And it’s a topic we’ll return to next week.

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