Morneau delivers a mini-budget to please Canada’s CEOs

You could have had a smaller deficit, Finance Minister Bill Morneau told Canadian business, but instead, you’ll get a hefty tax break on all your capital investments – computers, software, machinery, on and on.

Mr. Morneau surely knows what chief executives would choose. Balanced public finances are nice and all, but the tax breaks will boost their bottom line, starting now. That will keep corporate Canada’s complaints about deficits down to a dull roar.

At a time when U.S. President Donald Trump’s corporate-tax cuts have CEOs howling that Canada has lost its tax advantage, this mini-budget delivered a surprisingly large boost, especially for the short term.

The Finance Minister’s fall economic statement told us a lot about the Liberal government’s fiscal instincts – and how they stay on brand even when they go against type.

The document told us that new money has come free since last February’s budget – a stronger economy means higher revenues, so the federal government will be roughly $4.5-billion-a-year better off, give or take, for the next five years.

For the Liberals, that was mad money that had to be used – they weren’t just going to let it lower the deficit. That’s not how they roll. They put all of it to use, and then some. Deficits over the next four years are now expected to be a billion or two higher than the projections in February’s budget.

What’s new is that the lion’s share is for tax cuts.

The big-ticket item is corporate-tax breaks, in the form of accelerated capital writeoffs. And they are accelerated in a big way.

Companies will be able to write off 100 per cent of the cost of manufacturing equipment, or clean-energy equipment, or software, in the year when they buy it. They will be able to write off 82.5 per cent of the cost of computers. They can write off just about every other capital cost three times as fast.

It is surprisingly big. Over five and a half years, it will cost the treasury about $14-billion. That’s nearly half as much as it would cost to match Mr. Trump’s tax cuts.

It’s not a broad cut to all corporate taxes as Mr. Trump’s. Mr. Morneau’s economic statement noted the U.S. tax package, which went into effect in January, will increase the U.S. budget deficit by up to $1.5-trillion over the next 10 years.

In fact, it’s very much a big-L Liberal, Trudeau-government approach to corporate tax cuts. Everything in its economic rhetoric is about stimulating growth, less about structural changes in the country’s business climate.

This is an incentive for companies to put money into capital spending quickly – it will increase the incentive for companies to set up new plants or revamp systems. And it is front-end loaded, in a sense – companies could always write off equipment, but over longer periods of time. Now, they can do it almost immediately. It will cost the treasury a lot in the next couple of years – almost $5-billion in 2019-20 and $4-billion the following year – but the costs, in forgone revenues, will decrease over time.

But those CEOs will be happy – at least for now. Mr. Morneau has put his windfall toward their bottom line – at least, the ones who will make capital investments soon.

There were other things, including a new social-finance fund and tax breaks to promote journalism (a measure that will benefit news businesses including The Globe and Mail). There was a sizable accounting for a hodgepodge of spending measures announced since the budget, such as responding to a court order on Indigenous child services and steel-industry compensation. Billions a year were set aside for items for uncosted things to come, such as compensation for dairy farmers after the proposed USMCA trade deal comes into effect.

Yet, Wednesday’s choices were mainly about putting Liberal budgeting to work to please Canadian business – at a time when it has been warning that Mr. Trump’s budget was eroding Canada’s competitive advantage. One year from an election, Mr. Morneau has produced a mini-budget that will help bring business leaders onside.

And deficits? Once again, we’ve learned that Prime Minister Justin Trudeau’s Liberals don’t care. As long as the deficits are not going up much, and eventually projected to go down, they don’t think Canadians care much, either.

Corporate Canada usually leads the complaints about the red ink. But right now, Mr. Morneau has chosen corporate tax breaks over deficit-cutting. You can bet most CEOs won’t be complaining.