Don’t expect the Liberals to change course on economic policy


Justin Trudeau’s Liberal government is unlikely to change course on fiscal policy when Finance Minister Chrystia Freeland presents the fall economic statement on Tuesday or in next spring’s budget.CHAD HIPOLITO / The Canadian Press

Inflation has become a frightening worry. The economy is recovering faster than expected. So will Justin Trudeau’s Liberal government change fiscal policy and withdraw the $ 101 billion stimulus package announced in its April budget? Or his $ 78 billion in election promises?


It’s not in their political DNA.

This is a government that always talks about stimulating the economy, including the vulnerable, and supporting people with public funds – not slowing demand, backing down or tightening their belts.

That won’t change dramatically when Finance Minister Chrystia Freeland presents the fall economic statement on Tuesday. Nor are the Liberals planning any drastic change in next spring’s budget.

Many economists argue Ms Freeland is expected to cut part of the stimulus package announced in April due to strong job and economic growth and inflation at the highest rate in years. Don’t expect that.

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The income and deficit projections in Tuesday’s statement will likely look better than in April – inflation is actually contributing to this in the short term – but don’t take this as a signal that the Liberal government will shift gears to focus on balancing budgets.

This is not how they did it in six years in power. When deficit projections are better than expected, as is often the case, the Liberal government sees room for maneuver to spend more.

On Tuesday, Ms Freeland will be able to use lower deficit forecasts to argue that there is room for additional spending – some now, in Tuesday’s economic statement, including more measures to deal with the pandemic COVID-19, with more to come next spring. budget.

The finance minister will have to talk about inflation, but the Liberals have so far largely presented this as an issue of affordability and have argued that subsidized child care and measures to alleviate high housing costs will ease the pain.

There is political clamor – from the left and the right, as well as from provincial and municipal governments – for Ottawa to do something. So Freeland could signal that action is coming on election promises to institute a house tax and reduce foreign ownership of residential housing.

But the big picture, the plan to spend huge sums on a stimulus package and keep adding it, is not going to be hacked.

There are plenty of people telling them they should, and not just their Conservative political opponents.

Economists have suggested that the government should at least stop meeting demand for fuel.

Robert Asselin, first vice-president of the Business Council of Canada and former political adviser to Ms. Freeland’s predecessor Bill Morneau, recently wrote an article arguing that the Liberals’ huge stimulus spending should be readjusted because the economy is strong and inflation is now the biggest concern – he warned of “fiscal complacency”.

McGill University economist Chris Ragan said he didn’t think removing $ 20 billion from the $ 100 billion stimulus package would have much of an impact on inflation, but there is has yet another reason for doing so – because it would save $ 20 billion which is not necessary for economic recovery.

The Liberals see it the other way around. If the $ 20 billion cut doesn’t curb inflation, why do it? Inflation is still largely blamed on supply chain issues and is still expected to be a problem that will subside in a year from now. They argue that many of the spending measures in their stimulus package are aimed at either transitioning to a green economy or helping vulnerable people who will need it more because of inflation, not less. Full speed.

The liberal approach to the national debt has not really changed either – although it is now much higher than it was before the pandemic.

Prior to 2020, Trudeau’s Liberals argued there was room to spend because the ratio of federal debt to size of the economy, at about 30 percent of GDP, had not increased by significantly – so things were under control. After the massive pandemic deficits, the Liberals argue that everything will be fine because the debt ratio will not increase in the future – only now it is around 50% of GDP.

They could, with better revenue figures, suddenly present a forecast of balanced budgets in the years to come – politically disarming the Tories. But then they would open up to criticism from the NDP that they are imposing austerity. And under Mr. Trudeau, the Liberals tilted to compete with the NDP for voters. The liberal approach to fiscal policy will remain the liberal approach.

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