Back in August, Prime Minister Justin Trudeau expected a fall mini-budget to launch his big plans for recovery from the coronavirus pandemic. Now, some in the government are talking about using it to set up “guardrails” for the public finances.
There’s a note of caution now, one that came with fears of a second wave in September. So even though the mini-budget is expected to include new spending, the word is that it will be money for more immediate necessities, and modest “down payments” on future programs.
But even so, it will be very political – and very much focused on Liberal spending plans for the future.
The political controversy in the fiscal document that the Liberals plan to deliver – probably in November – will be in its assessment of how much money will be spent during the pandemic, and how much will still be available to keep spending.
Certainly, the signal from the Liberals is that even though the pandemic response will mean spending huge amounts for a year or two, and the country’s debt load will be higher in the end, there will still be, in their view, room to expand government spending over the medium term.
But it turns out people are starting to worry about a sky-high deficit – even some of the people who don’t want the government to stop spending. Maybe that’s where the guardrails come in. The fall mini-budget will have to be the Liberals' argument that Liberal spending can go on.
Mr. Trudeau’s long-term political agenda, after all, still nods to big-ticket items such as national child care, and national pharmacare, and big-spending climate-change incentives, while a crisis goes on.
There hasn’t been a budget in 19 months. In the spring, Mr. Trudeau argued that there was too much uncertainty. Former finance minister Bill Morneau presented a bare-bones “economic snapshot” in July that gave us that eye-watering projection of a $343-billion deficit for 2020-21, but not much context about where things are going. Business groups, in particular, want that context.
“It’s very important to see how the government sees this playing out,” Perrin Beatty, president of the Canadian Chamber of Commerce, said in an interview. There is still uncertainty, he acknowledged, “but you have to have a plan and you have to work to the plan.”
At this point, the Liberal government has a political need to start providing more context, too. It has to make the case that it can keep spending on all those Liberal plans.
Before the pandemic, Mr. Trudeau’s government had dropped what is known as a “fiscal anchor,” to reassure people, and financial markets, that its spending has limits. Debt, as a proportion of the size of the economy – the debt-to-GDP ratio – was never going to grow. The pandemic blew that up. The debt will rise to 49.1 per cent from 31.1 per cent of GDP just this year, according to that July “economic snapshot.”
Since no one can predict how long the pandemic will last, and Mr. Trudeau’s Liberals have gone all in on spending whatever it takes, they can’t know precisely how much debt they will rack up. Or where to drop a new fiscal anchor. That’s why some are talking about guardrails: barriers that keep moving objects from going off the road.
So the government is planning a mini-budget that will tally the emergency spending, and lay out scenarios for how much it could all cost in the end – presumably based on how long the pandemic lasts – and how the economy might move back to something like normal.
And then the Liberals will have to make the case that the crisis spending will eventually be over – that the country will emerge with higher debt, but still healthy finances, and the ability to keep spending, and keep running deficits. To allay the concerns about deficits and debts, they have to persuade Canadians that some kind of new limits have been set to keep it on track.
That’s going to be a a big political question. It’s easy to imagine Conservatives suggesting that the Liberal spending plan is reckless, or the NDP saying it is too stingy. But the Liberals will have to make a case that they can keep the finances on track if they want to move from crisis management to postpandemic spending plans.