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Surrounded by uncertainty, Morneau must tread lightly on budget day


Not broke, but stretched. Worried about piling up more debt. Uncertain about the future. Fearing an economic surprise. That’s a description of the Canadians who Finance Minister Bill Morneau is supposed to reassure with Wednesday’s budget. But it also describes the government he represents.

Mr. Morneau’s task is to deliver a budget for economically uncertain times. His problem is that the Liberal government is facing a big lump of insecurity, too, and had promised not to borrow much more, so it doesn’t have a ton of new money to throw at Canadians’ worries.

But reassurance seems to be what Prime Minister Justin Trudeau’s government wants this budget to be about.

Mr. Morneau, in Frankfurt last week, warned that the anxiety families are feeling for themselves and their children’s future “has fuelled very powerful political movements,” citing anti-globalization, populism and anti-immigration sentiments. In other words, if ordinary folks aren’t comforted, there will be trouble.

That’s not a new theme for the Liberals, but there’s a different emphasis now. Last year’s budget was titled “Growing the Middle Class,” but a year later economic growth is still weak, and signs of improvement tentative. The rhetoric this year seems aimed not so much at promising more growth, but salves for that feeling of vulnerability.

Mr. Morneau, for example, warned in that Frankfurt speech that the “never-ending need for new skills” has Canadians feeling “stressed about the future.” He promised a budget aimed at ensuring Canadians can get the skills they need at any age. It’s a promise that Ottawa will help Canadians whose skills become obsolete.

And the Finance Minister has repeatedly indicated he’s looking for ways to encourage women to participate in the work force more by providing “supports.”

Two weeks ago, Social Development Minister Jean-Yves Duclos launched a prebudget tour with a news conference, befuddling reporters with a collection of charts and slides. Part of it was a familiar Liberal theme that the middle class is struggling – a theme contested by those who note median middle-class Canadian incomes have grown in recent years. But another part of the message was that it’s not all about numbers: People making a decent living still feel insecurity if they worry about losing their job, or whether their finances can withstand a shock. It was an argument for social programs and supports to reassure folks who feel vulnerable.

But the money went out the door last year. The Liberals broke their promise to cap deficits at $10-billion, spending big in a sliding economy. But they maintained one promise that they would not increase the debt-to-GDP ratio – their so-called fiscal anchor. And they can’t spend much more without lifting the anchor.

Randall Bartlett, chief economist at the University of Ottawa’s Institute of Fiscal Studies and Democracy, estimates Ottawa will beat its deficit forecasts this year and in the next two years, but fall behind them in 2019-20 and beyond. His calculations suggest Ottawa could spend about $6-billion next year without increasing the debt ratio, but only $3-billion or $4-billion in the following years.

So how can Mr. Morneau fund a job-training program that reassures? The Liberals promised in the 2015 election campaign to inject $500-million into job training, but that money would come from employment-insurance funds, and that means raising EI premiums. The premiums just came down from 1.88 per cent to 1.63 per cent, so Mr. Morneau might be willing to raise them slightly – but small businesses will squawk.

Some of the oomph might come from reorganizing existing job-training programs, and adding a little money. In fact, we can expect a lot of this budget will be about talking up, and adding details to, measures funded in last year’s budget, from the Canada Child Benefit to infrastructure.

Of course, the government could raise some revenues by closing a few tax loopholes, or imposing a Netflix tax, but it’s a political risk to raise taxes much more. And then there are other political calculations. Ottawa may feel it must increase defence spending to respond to pressure from the Trump administration. Then there’s the desire to keep some wiggle room available for next year, in case the U.S. budget, or trade talks, change things. Mr. Morneau can only reassure so much, because the federal government is also feeling stretched in uncertain times.