Budget tweaks on the right course, but too little to matter
One gets the impression that Prime Minister Justin Trudeau’s government wants to be remembered for having done great things.
Finance Minister Bill Morneau used the first part of his budget speech this week to remind the House of Commons that he was standing there because Canadians in 2015 chose a “more ambitious approach” than that of the previous government.
But rather than bend the arc of history, the Trudeau government seems content to tug at it a little. It hasn’t taken a major policy risk since Morneau threw off the yoke of balanced budgets in his first year. Maybe someone in Ottawa decided that’s all the shock the electorate can stand, because the government has been playing it safe ever since. The latest budget is another example. It identifies the right problems, and then promises second- or third-best solutions.
This should comfort any fiscal conservative who has bought into the hype that radicals have taken over the Prime Minister’s Office. But if you happen to think Canada’s longer-term prosperity would benefit from some bold decisions in the short run, you probably are starting to lose hope: Trudeau seems intent on spending a little money on a lot of things, rather than a lot of money on a few things that would make a difference.
Gender, surprisingly, is the best example.
Morneau’s budget does an excellent job of making the economic case for aggressive policies that would narrow the gap between the number of men and women in the labour force. There are now more Canadians eligible for retirement than there are children below the age of 15. We need more workers and demographic data suggests there are hundreds of thousands of women who have been frozen out of the paid workforce.
“That changes today,” Morneau said in his budget speech.
The government proposes some things that could help. It will attempt to cajole fathers to take time off to care for infants by offering “use-it-or-lose-it” parental leave to the second spouse in a family unit, and it will spend more money to help women start businesses.
All that will help. But Morneau again balked at spending real money on lowering the cost of daycare, which research shows is the most effective way to get more women working. Morneau might have proposed a tax credit tied to daycare costs. Instead, all he did was remind us that last year’s budget proposed $7.5 billion over 11 years for “early learning and child care.” That’s not enough to make a significant difference.
The Trudeau government also showed its tentative nature by opting against countering President Donald Trump’s efforts to bully and cajole international investors into spending in the United States.
If there is one thing Canada’s economy needs more than new workers, it’s more investment. Foreign direct investment is lower than it should be, given gross domestic product expanded about three per cent last year, the fastest among G7 nations. The Bank of Canada is worried uncertainty over the North American Free Trade Agreement and Trump’s tax cuts could divert business spending to the U.S. that might otherwise have occurred in Canada.
Morneau could have countered those fears with some tax cuts of his own, but he elected to wait. “We will be vigilant in making sure Canada remains the best place to invest, create jobs and do business — and we will do this in a responsible, careful way, letting evidence, and not emotion, guide our decisions,” he said in his speech.
That’s defensible, but there also is a case to be made that something already should have been done to encourage more investment.
Statistics Canada reported Wednesday that companies and government will spend about $239 billion on non-residential capital investment this year, slightly more than 2017, but 12 per cent less than in 2014. The StatCan survey was conducted mostly over the latter part of 2017, so the responses it gathered predate the Trump tax cuts.
Having abandoned any notion of balancing the budget, Morneau nonetheless seems reticent to let the deficit grow. He insisted again Tuesday that his financial plan was based on “sound fiscal management.” He supported that claim by pointing out that debt as a percentage of gross domestic product is projected to steadily decline over the next several years.
And yet even here the Trudeau government does less than it could.
There is nothing magical about a balanced budget. The most important thing for a country like Canada is that debt be kept in check to ensure downward pressure on interest rates. Because Trudeau and Morneau opted to break with the convention of balanced budgets, there always will be doubts about their commitment to fiscal prudence. They could neutralize those suspicions by legislating a commitment to keep the debt-to-GDP ratio on a downward track, but they passed on this best practice in the budget, also.
Nothing about the Trudeau-Morneau approach is likely to cause any harm. In that sense, it can be argued the latest budget deserves passing marks. But Trudeau was elected because voters agreed a moribund economy demanded a different approach. If the result of those deficits is more muddling along, he might as well return to balancing the books.
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