Liberal budget to applaud Canada’s economy, but who deserves credit?

OTTAWA — When the Liberals release the last budget of their mandate Tuesday, Canadians can expect to hear arguments that years of deficit spending have put the economy on stronger footing.

Finance Minister Bill Morneau has promised the budget will contain help for workers in need of skills training, young people looking to buy their first homes, seniors worried about their own finances, and patients with high drug costs.

“It’s an election budget … There’s been a tendency to use these as important communications vehicles — almost platform-launching vehicles,” Kevin Page, Canada’s former parliamentary budget officer, said in reference to recent budgets from federal and multiple provincial governments.

The likelihood that the Liberals will use the budget to sell their own record raises a question: who deserves credit for Canada’s strong economic run?

Job-creation numbers have been solid and the unemployment rate has fallen close to a 40-year low. A recent Statistics Canada report said in 2017 fewer Canadians were living under the official poverty line than at any time in the last decade. The agency credited the drop to a mix of a stronger economy and the Liberals’ enhancement of child benefits.

Canada rode a long stretch of impressive economic growth until the final three months of 2018 before it abruptly decelerated — and nearly stalled — along with a drop in oil prices. Experts predict the economy will regain its momentum over the coming months.

But even with a surprisingly weak end to 2018, Ottawa’s financial situation is better than last November’s fall fiscal update projected.

Experts say the federal treasury pulled in more tax revenues than anticipated. Many fully expect the Liberals to dedicate the bulk of the extra money to new promises, as they’ve done with windfalls in past budgets and economic statements.

Over the last few years, the Liberals have spent billions more than they promised in their 2015 election platform.

They vowed to post annual deficits of no more than $10 billion and to return to balance by 2019. Instead, they’ve posted shortfalls of more than $18 billion in each of the last two years and have offered no timeline to balance the budget. In their November update, the Liberals projected annual deficits of between $18.1 billion and $19 billion over the next three years.

Morneau has regularly argued that the Liberal plan is working.

“Our government has made smart and responsible investments in the middle class, and Canadians are seeing concrete results,” Morneau told the House of Commons last month as he announced the budget date.

Morneau has argued the bigger-ticket commitments, in areas such as child benefits and infrastructure, have been necessary to juice the economy for years to come. He’s also insisted the deficits remain small enough that they’re fiscally prudent.

Page expects the Liberals to take credit for the economic improvements and he thinks they deserve some recognition — particularly for enhancing child benefits and an ambitious, expensive infrastructure plan, despite its slow start.

But he added Canada’s prospects have also been lifted by strong economic performances in the United States and the world as a whole.

Page said it’s difficult to know whether the Liberal deficits will actually raise Canada’s long-term growth or if they’ve mostly created a big, temporary bump in consumer spending, as the government has borrowed money and put it into Canadians pockets.

“You don’t have to be at balance. There’s nothing perfect about a zero (deficit) number in this environment,” said Page, who now heads the Institute of Fiscal Studies and Democracy think-tank at the University of Ottawa. “Having said that, we are adding to the stock of debt and that creates potential instability down the road and we’ll have less room to manoeuvre — and future generations, definitely, are going to pay higher interest costs on the public debt.”

The Opposition Conservatives, some economists and leaders in corporate Canada have criticized the Liberal deficits, especially because they’ve come during good economic times that are traditionally thought to be when governments should pay debt off.

“My concern is, and I’ve said this to him … privately and publicly, it’s not that you’re spending, it’s where you’re spending,” Goldy Hyder, CEO of the Business Council of Canada, said of his exchanges with Morneau. “You’re spending a lot on things that no one can really point to and can say (there’s a) direct line back to helping the economy.”

Hyder said he supported Morneau’s move last fall to use some fiscal space for new accelerated investment write-offs for businesses. He also applauds the Liberals’ commitment to invest in worker training in Tuesday’s budget and their earlier efforts on trade, immigration and child benefits.

But he insists there’s an urgent need for Canada to be more competitive on regulations and taxes if it hopes to avoid falling behind the rest of the world.

Andy Blatchford, The Canadian Press