There’ll be no bow to U.S. President Donald Trump’s deficit-driving tax cuts. Finance Minister Bill Morneau will nod to them in his fall economic statement.
It will be a minor course correction to Liberal economic policy that is as much about politics as finance. The Trudeau government wants to be seen working on business.
Liberal economic policy has mostly been about stimulation and redistribution. Growth has been the buzzword, and that has meant stimulating and spending. Equality was in the title of Mr. Morneau’s 2018 budget. Gender equity was the talking point. Liberal economic policy has spoken as much about social justice as the country’s business.
But right now, the Liberal government wants to be seen talking a bit more about business.
Advocates for Corporate Canada are warning money will flee south to Mr. Trump’s lower taxes. Polls regularly show economic issues, like the cost of housing, wages and job prospects, rank higher among Canadians’ concerns than most social issues. Prime Minister Justin Trudeau’s party has lost a big chunk of the male voters who voted for the Liberals’ get-the-economy-moving infrastructure plans in 2015. Talking about trade, business investment and jobs – that might help win those voters back.
The Liberals don’t want to pour billions and billions into the cause, mind you. So Mr. Morneau’s mission is to talk about targeted incentives to encourage new investment in Canada, and put down the notion that the government should be giving big, broad tax breaks to big business.
The government has already signalled it won’t match Mr. Trump’s tax cuts – they are driving U.S. deficits higher and would do the same here. It wouldn’t fit the Liberal brand: Mr. Trudeau ran in 2015 promising the wealthy would pay a bit more. He’s not going to run in 2019 defending deep corporate tax cuts.
Instead, Mr. Morneau is expected to accelerate business deductions for capital investments, a policy targeted at encouraging new investments.
There will be plans to spend more on efforts to diversify trade beyond the U.S. A new drive for deregulation to reduce the thicket of rules in certain sectors will be announced.
All of that is intended to send a signal that the government wants to improve the climate for business. There are suggestions from some within the government that separately, the Liberal government will accept some changes around Bill C-69, which would revamp reviews of energy projects, and which the oil industry complains will be a barrier for new investment.
Don’t expect it will quiet all those anxieties about Canadian competitiveness. For one thing, a lot of those come from the oil industry in the west, where soft prices and deep discounts on landlocked Canadian oil are feeding a new round of pessimism. The Liberal government can claim it has done the biggest thing it can – buying the Trans Mountain pipeline and planning to expand it – but that won’t calm spirits until bitumen is flowing through new pipe.
Tax breaks will get a welcome. So will a deregulation, which is something that is often announced, but more rarely delivered. Goldy Hyder, the president of the Business Council of Canada, said the main issue for his members – CEOs of large corporations – isn’t tax cuts, but deregulation.
More importantly, there’s a big gap between the government’s sunny economic story and the clouds that the business community sees on the horizon.
Mr. Morneau can argue the economy, and businesses, are doing well, that unemployment is low, and, as much as deficit hawks complain, the government’s deficits are modest and federal debt is under control. Business argues Mr. Trump is cutting Canada’s competitive advantage and there are reasons to worry about Canadian growth: indebted consumers and a U.S. boom that might falter. That can turn a modest deficit into a big one in a hurry.
But none of that is going to push the Liberals into a sea change. The Liberals really can point to a strong economy. Mr. Morneau will stick to the same track to gradually reduce the deficit. And if the economy does better, and more revenues come in, you can bet he’s not going to devote it all to corporate tax cuts. His next budget will be a pre-election budget. In the meantime, the Liberals want to send a signal they’re taking care of business.