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Finance Minister Chrystia Freeland’s fall economic statement – a mini-budget meets a progress update since last spring’s budget – lands with the country, and the Liberal government, facing two big challenges.

There’s the long-term issue that has bedevilled governments since before Confederation: prosperity and growth. And then there’s the immediate problem: inflation. It looms over everything in Ms. Freeland’s plans. It will pass, but Ottawa can influence whether that happens sooner or later.

On the plus side, the Canadian economy’s remarkable post-pandemic rebound has supercharged government revenues. The provinces are collectively in surplus – yes, you read that right – and the feds recorded a much smaller-than-expected deficit in the fiscal year that ended in March. Ottawa expects a deficit this year of just $36.4-billion, including actuarial adjustments, or $26.6-billion on a cash basis. Ottawa is looking at a small fiscal shortfall this year of around 1 per cent of GDP. Maybe a bit more, maybe less.

Remember when the British duo of Kwasi Kwarteng and Liz Truss – theme song: We’re Here for a Good time (Not a Long Time) – freaked out markets and ignited inflation fears with a budget of big tax cuts and a massively pumped-up deficit? Ms. Freeland isn’t doing anything remotely like that. The deficit is going from pandemic mega-sized to relatively small and shrinking, and the fall economic statement – which is light on new spending, new tax cuts or new taxes – does not change that. “We are keeping our powder dry,” says the Finance Minister.

It is, broadly speaking, the right approach. Big deficits are the cure when you’ve got an economy in recession and in need of a fiscal pump-up. But borrowing from the future, to inject extra demand into the present, is not what’s needed in an overheated economy that the Bank of Canada is trying to cool. A relatively small federal deficit, combined with the collective provincial surplus, has Canada with the slimmest government shortfall in the G7. In inflation-fighting terms, that has Liberal fiscal policy looking pretty good, especially graded on a curve.

Good, but not perfect. Ottawa’s deficit, though small at 1 per cent or so of GDP, is still pumping up the economy to the tune of around 1 per cent of extra demand. That means the Bank of Canada has to lean a bit more in the other direction, via higher interest rates.

Ideally, Ms. Freeland would have found around $20-billion in extra tax revenues or foregone spending. But again, graded on a curve, Liberal fiscal policy is pushing against monetary policy to a much lesser degree than in Canada’s peers.

Inflation is the short-term problem. Economic growth – ensuring it happens, and that prosperity is widely shared – is the perpetual, long-term worry.

Earlier this year, the United States passed something called the Inflation Reduction Act, which is not at all about inflation, and is mostly about industrial policy and subsidies for green energy and technology. It’s an opportunity for Canada; as the Liberals trumpet, the legislation’s “Buy American” auto provisions were changed to “Buy North American.” But it’s also a threat. U.S. taxpayers will be giving significant subsidies to everything from battery makers to carbon capture in the oil and gas industry, and Ottawa feels it has no choice but to get into the game. Major spending is coming.

Because Thursday’s update is a Liberal document, it has a few Liberal quirks. For example, if a Martian were to arrive cold to Ms. Freeland’s speech, they’d assume Canada’s economic superpower is critical minerals for electric-car batteries, not oil and gas.

The Liberals aren’t exactly hostile to the oil industry. (Remind us which government bought the Trans Mountain pipeline and is spending billions of dollars expanding it?) And in recent weeks both Ms. Freeland and Foreign Affairs Minister Mélanie Joly have given signs of recognizing Canada’s opportunity to produce and export more oil, and especially more gas. But there remains an ingrained reluctance to say certain words. The oil patch is the wealth engine whose name must not be spoken.

In her fall economic statement speech, with a focus on Canadian energy’s role in global security and national prosperity, Ms. Freeland mentioned “green transition” three times, talked about “hydrogen” twice and referenced “critical minerals” five times. She never said “oil” or “natural gas.” Not even once.

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