Two streams of news are playing out this week: the Liberal government’s economic agenda, and the spread of the Omicron variant of COVID-19. Both have political consequences.
Finance Minister Chrystia Freeland’s midterm report, released Tuesday, made it clear that, for this government, social priorities trump economic concerns.
Stronger-than-expected economic growth (part of it inflation-induced) has lowered the projected deficit for this year, to a still-eye-watering $145-billion. But instead of using the increased revenue to lower that figure, the Liberal government will be increasing spending, including $40-billion over seven years to compensate First Nations children and families for the failures of the child-welfare system.
This comes on top of the Liberal government’s ambitious child-care program, which will permanently increase federal spending by more than $8-billion a year when fully implemented, the equivalent of more than a third of the defence budget for one single program.
The Liberals have increased health care funding to the provinces. They made $78-billion in commitments over five years during the election campaign that will be incorporated into the next full budget. They are offering $5-billion to assist British Columbia in the wake of recent disastrous floods, with more to come.
Even as this government establishes new records in spending and debt, a serious challenge from south of the border threatens the Canadian economy. Alexander Panetta, the CBC’s Washington correspondent, tweeted on Wednesday that he was pressing senators about a proposed provision in the Build Back Better bill that would impose a stiff tariff equivalent on electric vehicles built in Canada for sale in the United States.
When Mr. Panetta asked Sherrod Brown, Democratic senator from Ohio, about a letter Ms. Freeland and International Trade Minister Mary Ng had sent urging senators to drop the restriction, Mr. Brown replied: “I don’t care what Canada thinks.”
If the Senate passes the bill with the EV import restriction in place, the Canadian economy could take a significant hit. And it won’t help that the federal government is threatening to impose retaliatory tariffs in return. Canada cannot win a trade war with the United States, and that trade war will itself damage the economy.
With inflation running at almost 5 per cent, the government this week renewed the Bank of Canada’s mandate to keep it at around 2 per cent. If the inflation rate doesn’t come down soon, governor Tiff Macklem will have no choice but to raise interest rates, which will slow economic growth and cause pain for anyone with a mortgage or other forms of debt.
All this comes amid growing concern within the public service over the Liberals’ lack of interest in generating economic growth, as my colleagues Robert Fife and Steven Chase reported this week.
That lack of concern should come as no surprise. Like his father Pierre, who showed little interest in economic issues, preferring to focus instead on constitutional concerns, the Prime Minister places a low priority on fiscal or monetary policy.
When asked in 2014 whether he would be willing to run deficits as prime minister, he famously replied: “The commitment needs to be a commitment to grow the economy and the budget will balance itself.” On his watch, the budget has never been balanced.
Questioned about rising inflation during the election campaign in August, he said, “You’ll forgive me if I don’t think about monetary policy. You’ll understand that I think about families.”
At some point, voters are going to notice.
Polls have shown over the years that when the economy is the top concern among voters, Conservatives move ahead of the Liberals. But when other concerns push the economy down the list, the Liberals do better.
“Concern about the economy could be the sleeper issue of 2022,” says pollster Nik Nanos of Nanos Research.
“Canadians have seen a Trudeau Liberal government that has spent funds to help Canadians and Canadian enterprises get through the pandemic,” he told me by e-mail, “but there is less of a sense of how it would invest to create jobs and prosperity. Canadians today are more pessimistic about the future than at any time since we have started tracking this.”
The day the economy matters more to voters than the pandemic is a day the Liberals should worry about.
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