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Michael Sabia, a seasoned CEO, joined the Department of Finance as its deputy minister in late 2020.CHRIS HELGREN/Reuters

Michael Sabia spent decades helming major Canadian companies before the Liberal government recruited him to be deputy minister of the federal Department of Finance in late 2020. He accepted the job, he said at the time, in order to drive an economic-growth agenda in Ottawa.

But so far, according to many with direct knowledge of the department’s inner workings, he has not been able to deliver that agenda, nor has he made headway on reining in public spending.

Insiders say he has struggled in a political system where the Prime Minister is more interested in redistributing the existing economic pie than in generating private-sector growth. Another obstacle for him has been working for Finance Minister Chrystia Freeland, who doubles as Deputy Prime Minister and has other heavy files on her desk.

Freeland to release fall fiscal update just days before break

The Department of Finance is viewed as the most important ministry in Ottawa, but it increasingly takes its orders from the Prime Minister’s Office, where economic policy is driven by political calculations, according to more than a dozen Liberals, corporate executives and former department officials. The Globe and Mail is not identifying many of the sources because they fear career retribution for speaking publicly.

Prime Minister Justin Trudeau’s senior lieutenants, such as his chief of staff, Katie Telford, his senior adviser Ben Chin and Tyler Meredith, the Finance Department’s director of economic planning, wield considerable influence over the country’s economic direction and the policies adopted by the Ministry of Finance.

The big question for Finance Department watchers is whether this system has stymied Mr. Sabia, ostensibly Canada’s economic czar, or whether he has merely been delayed by circumstances, including the pandemic.

The insiders said Mr. Sabia’s agenda remains unfulfilled in part because Mr. Trudeau has never been a leader preoccupied with economic and fiscal issues – unlike Brian Mulroney, Jean Chrétien, Paul Martin or Stephen Harper.

“You have a Prime Minister who is not really interested in the Department of Finance,” said Scott Clark, who was deputy finance minister under Paul Martin. “If the Prime Minister is not interested, if your Minister of Finance is not interested, it doesn’t matter who you bring in. You are not going to be successful.”

Mr. Sabia has, according to four sources, tried unsuccessfully to push the PMO and Ms. Freeland to rein in government spending.

Those sources said Ms. Freeland has entrusted day-to-day operations of the department to Mr. Sabia. She rarely takes department briefings, preferring to let him manage policy discussions with Finance officials. The sources said some assistant deputy ministers have not spoken to Ms. Freeland for months.

Where the Finance Department is concerned, her focus is largely on political outreach to stakeholders, such as financial institutions and business and labour groups. Ms. Freeland has also been preoccupied with overseeing bilateral disputes with the United States, particularly over President Joe Biden’s proposed “Buy American” policy for electric vehicles.

Mr. Sabia is a seasoned CEO who headed telecom giant BCE and Quebec’s massive pension fund, the Caisse de dépôt et placement du Québec. During the Mulroney years, he was a senior federal civil servant who worked on the landmark goods and services tax. He declined to be interviewed.

Alex Lawrence, communications director for the Finance Minister, praised Mr. Sabia for “exemplary leadership” throughout the pandemic.

“He brings with him a wealth of business experience and an investor’s mindset, “ Mr. Lawrence said in a statement. “Our government’s fiscal management is recognized as prudent, responsive to the country’s needs, and has prevented economic scarring.”

He defended the government’s economic management, noting that Canada’s AAA credit rating was reaffirmed after the spring budget and again this fall.

“Further, Canada’s recovery of jobs and output is very strong and the country has already recovered 106 per cent of jobs lost during the pandemic,” he said.

Three former senior Finance officials said there is concern within the department about the magnitude of spending aimed at encouraging consumption, rather than at spurring economic growth.

Mr. Clark said morale is low in the department. There has been significant turnover of experienced staff, and no one knows what policy issues motivate Mr. Sabia, he added.

“We don’t have a tax strategy. We don’t have a growth strategy. I really don’t know what he stands for. That’s the mystery,” Mr. Clark said. “When you bring in a guy who doesn’t know the people and doesn’t have the faith of the department … I think this was a huge mistake.”

In April’s pre-election budget, the first under Mr. Sabia’s watch, the government unveiled $101-billion in stimulus spending over three years. During the election campaign, the Liberals promised another $78-billion in spending. In the budget alone, there were more than 200 new spending measures. The centrepiece was a $10-a-day childcare plan, which the Liberals said would support economic growth.

“There is some debate to what extent it would really change the long-term growth outlook for the economy, but I think at the margin it probably does help support labour-force participation,” said Doug Porter, chief economist for the Bank of Montreal.

Chris Ragan, director of McGill’s Max Bell School of Public Policy, said he can’t detect Mr. Sabia’s handiwork in what has come out of Finance in the past year. “I don’t know him well enough to maybe see the subtle fingerprints, but I don’t see the obvious fingerprints, either,” Mr. Ragan said.

He added that he doesn’t hear Ms. Freeland talking enough about limits to government spending.

“It looks like they just don’t think there is any reason to worry. And that is what worries me.”

Several Bay Street executives told The Globe they had high expectations for Mr. Sabia’s growth agenda and are now disappointed. They noted Mr. Trudeau’s election pledge to hike bank taxes, which they argued was good retail politics but bad economics. Mr. Trudeau’s preference is to tax corporations and wealthy Canadians to fund new spending.

Still, executives who know Mr. Sabia said it’s good to have someone with ample private-sector business experience in Ottawa who can at least bend the ear of the Prime Minister where possible.

Jean-François Perrault, chief economist at Scotiabank and a former senior Finance Department official, said he would like to see Ottawa provide “a clear kind of postpandemic plan for how we permanently raise Canadian living standards and meaningfully increase our productive capacity.”

In the 1990s, Canada’s debt ballooned to 67 per cent of its annual economic output. This forced large, painful spending cuts as Ottawa balanced its books for the first time in decades. Don Drummond, who served as a senior Finance Department official during that time, fears that the same thing will happen again.

“We made people’s lives miserable. I don’t take any pride in that. I don’t want a repeat,” he said.

He added that the federal government’s debt burden has risen to a dangerously high level as a result of COVID-19.

Beyond the lingering pandemic, Canada is confronting other profound challenges, including the likelihood of more-frequent natural disasters caused by climate change. Canadian households are deeply indebted, and the country faces the prospect of sustained high long-term unemployment, even though there are one million job vacancies – the result of a mismatch between skills and opportunities.

The federal government debt is projected to double by 2026 to $1.4-trillion, from $721-billion before the pandemic. This number does not include the debts of provincial governments.

Ms. Freeland has publicly admonished those worried about the debt the government has run up. “For Canadians of a certain vintage – and I freely admit to being one of them – the idea of increasing government debt holds particular terrors,” she said in October, 2020. “But it is a poor general who fights the last war. And the reality is that, today, the prevailing global economic environment is changed entirely.”

Mr. Drummond said it’s unethical to leave the massive cost of fighting the COVID-19 pandemic to future generations. “The response of the government here – and pretty much governments everywhere – is they will take the cost of dealing with COVID and put it in a box with a nice little ribbon around it, and they will hand it to future generations.”

A veteran of dozens of federal budgets, Mr. Drummond was especially perturbed by the assumption in the 2021 budget that interest rates will continue to lag economic growth – an anomaly that has persisted since 2008, but which he warns will one day end, resulting in increases in debt costs.

He said the federal government in its December fiscal update, set to be released Tuesday, should be “very honest with Canadians” about the debt burden and the need to find alternative revenue sources. The government’s promise to increase its health care transfer to provinces by 5 or 6 per cent a year, he noted, would be an additional expense on top of other big spending plans.

“We don’t have any revenue base that’s going to grow 5 to 6 per cent a year. How are we going to pay for it? Why aren’t we talking about that?”

Mr. Porter, of the Bank of Montreal, said the 2021 budget didn’t seem like a dramatic departure from “what we’d seen before,” but he questioned whether it’s fair to judge Mr. Sabia’s effort by a fiscal plan unveiled during the third wave of COVID-19.

“The bigger test will be next year’s budget, when I think we get a full and complete bead on to what extent he’s really moved the needle.”

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