Bill Morneau has a good news story to tell—if anyone's listening -

Bill Morneau has a good news story to tell—if anyone’s listening

A positive update on Canada’s economy is overshadowed by the finance minister’s credibility deficit

Finance Minister Bill Morneau shakes hands with Prime Minister Justin Trudeau after delivering his fall economic statement in the House of Commons in Ottawa, Tuesday, Oct.24, 2017. THE CANADIAN PRESS/Adrian Wyld

Finance Minister Bill Morneau shakes hands with Prime Minister Justin Trudeau after delivering his fall economic statement in the House of Commons in Ottawa, Tuesday, Oct.24, 2017. THE CANADIAN PRESS/Adrian Wyld

During the Great Tax Debate of 2017, fans of realpolitik showed their disregard for wonks by assigning them to the fictional “Economist Party.”

The wonks—academic economists, mostly—invited ridicule because they had the audacity to demand proof when apoplectic entrepreneurs declared that Finance Minister Bill Morneau was bent on destroying capitalism.

Disclosure: if it came down to a choice between, say, Lindsay Tedds, a tax expert at the University of Victoria who is active on social media, or Arlene Dickinson, the Dragons’ Den star who implied the only thing keeping entrepreneurs in Canada was the ability to sprinkle profits among family members, I’m on Team Tedds all the way. But all that is over now. The Economist Party lost. Prime Minister Justin Trudeau and Morneau capitulated, hacking their tax-reform plan to its least controversial core, and adding a promise to drop the small-business tax rate to nine per cent from the current 11 per cent by January 2019.

READ: Trudeau’s pandering small business tax cut will do nothing for the economy

The sops kept coming on Tuesday, as Morneau used the annual autumn update of the federal government’s fiscal situation to change the channel from French Villas and Numbered Companies to Good Times Brought to You by the Enlightened Liberal Party of Canada. “In just two years, the government’s investments have helped to increase consumer confidence and brought hope for the future for millions of Canadian families,” the Trudeau government said through the 2017 fall economic statement, also titled Progress for the Middle Class.

I ignored Morneau’s speech to the House of Commons, as I’ve tired of the Trudeau PMO’s insistence that every voter be addressed as if he or she is 13 years old. Instead, I stuck to the update, wondering what the calm and rational Economist Party might say about the finance minister’s work to date.

RELATED: Bill Morneau’s shift from long-term strategy to immediate benefits

The star of the 2017 update was the Canada Child Benefit (CCB), the federal payment to middle-income households that appears to have played a part in jolting the economy out of the slump that followed the collapse of oil prices in 2014 and 2015. The document includes a graph that shows consumer confidence and household consumption going straight up following the introduction of the CCB in July 2016. Even Bank of Canada Governor Stephen Poloz is a fan. The CCB “was pretty significant, for that first year,” he told me and a few others in Washington, D.C. on Oct. 14. “What it did was, it put a floor under some folks and it gave them, in some cases, the extra ability for the second spouse to go to work. It may have meant being able to afford second transportation or childcare, or both of those things. It could be one of the reasons we’ve had a bump up in the labour participation rate, which is positive.”

Morneau knows a winner when he sees it. He said the government would ensure the gains from the CCB aren’t eroded by inflation, promising to accelerate a plan to index the benefits by two years. Much of the rest of the document was taken up by a restating of the new tax proposals announced last week. The only other significant policy announcement was a pledge to expand by $500 million annually a tax benefit for poorer Canadians with jobs.

The latter is a good idea. Income supplements are excellent ways to encourage people to work rather than settle for welfare payments. The potential of Canada’s economy will be constrained as an aging population shrinks the pool of available labour. That means governments will need to think harder about encouraging previously marginalized talent to take jobs. The CCB also may help, although most studies suggest the best way to do that is to subsidize daycare directly.

Morneau might have been tempted to spend more.

Canada’s economy has grown significantly more this year than anyone imagined it would. That means unexpected revenue. The Finance Department now predicts the budget deficit will be about $20 billion in the fiscal year ending in March 2018, compared with a projection of $28.5 billion at the start of this year. The deficit is on track to be about $15 billion narrower over the following two fiscal years.

The windfall will bring calls for Morneau to balance the budget. He appears to have no interest in doing that. The deficit will be $12.5 billion in 2023, which is the outer limit of Finance’s forecast. “The government’s plan includes a responsible approach to fiscal management that is appropriate for the current economic cycle and focused on long-term economic growth and fiscal sustainability,” the update states. “This approach has been effective, and the economy is outperforming expectations.”

The Economist Party will split on this question. Keynesian economics got a bad name because politicians ignored John Maynard Keynes’s counsel that periods of strong economic growth be used to pay off debt. As a result, a generation of economists doubt governments can be trusted to keep their spending in check during times of plenty. That’s why you may have heard voices on Bay Street begging the Trudeau government to put a timeline on when it will eliminate the budget shortfall. Others think the government should introduce a law obliging it to do so over a reasonably short period of time.

READ: Should Canada adopt a ‘budget honesty’ charter like Australia?

Morneau is going to try something different.

A better measure of a country’s fiscal health is the ratio of debt to the size of the economy. Canada’s debt-to-GDP ratio is a mere 31 per cent; it is projected to decline to about 29 percent over the next five years.

That’s pretty much what Morneau said would happen in 2016 when he plunged the federal government into deficit for the first time in a couple of decades. (Stephen Harper’s deficits were forced by the Great Recession.) He said government spending would make up for absent business investment, sparking economic growth, which would generate enough revenue to keep federal debt from getting out of hand. Morneau says he will be guided by the debt, not the deficit. His update commits to keep the debt-to-GDP ratio on a downward trajectory.

A public promise from the finance minister should be enough to anchor expectations. In Morneau’s case, it might not be. It will take time for him to restore the credibility he lost for opting against selling his stake in the family business, which operates in areas subject to Finance policy and regulation. That’s too bad, because otherwise he’d have an excellent story to tell.



Bill Morneau has a good news story to tell—if anyone’s listening

  1. So long as we continue to have the college party boy as PM, recklessly spending our money like there is no tomorrow, and desperately searching for additional tax revenues to support this addiction, there will be little to no investment on the part of small and mid-sized businesses and the entrepreneurs that own and manage them.

    After the greedy and irresponsible tax grab that Justin and Bill attempted to inflict upon these people what little trust there may have been has now been destroyed. The risk of this Liberal government attempting to find some other way into the bank accounts of their businesses is simply too great. And so no additional money will be invested. What money that can be taken out of these businesses will be. The result will be economic stagnation.

    The national economic picture for Justin and Bill may be looking a bit rosy for now. But it is the result of typical Liberal over spending. An amount over spending that is at such a great amount that it is simply not sustainable. (Thus the desperate searches for more tax money.) Someday the bill will come due and Bill will not have the money to pay it. When exactly that day will be is uncertain. Justin and Bill are hoping it will be after the next general election.

  2. “That’s pretty much what Morneau said would happen in 2016 when he plunged the federal government into deficit for the first time in a couple of decades.”
    Where has this author been over the past decade? Stephen Harper ran six straight deficits from 2008 to 2014, two of them larger than the Liberals’.

    • Exactly. That’s quite the misrepresentation.

    • Difference is: The Liberals are lying.,,and they have been lying about the true economy and stealing our hard earned taxes, since day one. They are professional defrauders. That is their skill set, cheat until caught. And even when they are caught cheating hundreds of millions of tax dollars, the ethics commish does nothing. She is also “on the take”…like Poloz.

      No one gives a flying frig, about Canadians. “Me, myself and I”, the wealthy boast, the wealthy with families, and children and friends and colleagues, with the same mindset.
      Me, myself and I, using Canadian tax dollars!

      The success is in the creative calculations and fabrications, and pathological pay, not in truth and honor. Then they put a gag order on 200 government employees working the finance reports, for life!! Such evil! How do they live with themselves?

      But Turdo still has the balls to meet the Pope! wow!

      God help Canadians…Lose Trudeau, Morneau, and their spineless, decadent, LGBTQ caucus, full of brainless but multinational and typically silent and invisible, politicians!

  3. Using debt-to-GDP ratio instead of deficits is not unreasonable. However, the LPC campaigned on $10B deficits. Clearly, this was a campaign promise the LPC had no meaningful intention of keeping.

    As noted by others, funding spending increasing by debt when times are good has a tendency of leading to real pain when times aren’t good – just ask Jean Chretien who had to clean up the mess left by P.Trudeau and Mulroney.

  4. Is the Ottawa media ever going to tire of the Opposition charge that Bill Morneau is totally, utterly corrupt and dishonest? This is a product of the toxic Ottawa tactic of personal destruction politics. Pierre Poilievre and his ilk are turning political debate into an ugly, angry parody of reasonable discourse.
    PPG, this isn’t even interesting anymore.
    What is the responsible course when real issues are out there?
    How could Morneau have such a long business and financial career and no one would ever notice or unearth these horrible character flaws and weaknesses?

  5. The trouble with liars and cheaters, is that no matter their genius, one can not follow their “thread”

    Poloz raised interest rates twice since July, and the banks raised their rates a week before Poloz.
    BoC, Trudeau and the IMF are citing that Canadians are deep in debt, justifying the increases in interest and the raise in taxes….then they flip and say Canada is in spectacular financial form, then they still raise interest rates!? Where is all the money form this economic brilliance? We do not have money from tax spending, only debt.

    And who put Canadians deep in debt? Trudeau and Morneau!
    Their endless gifts to terrorist prisoners, developing countries, rock stars, magazine covers, the theatre, their endless illegal immigrants from Trump.

    Trudeau has done nothing to address the flood of immigrants from the states. But then, he only “promised” to “consider” to address immigration. A conscieted liar by any other verb, is still a liar.
    Trudeau is not suing the US nor the Syrian prisons where these “tortured” Canadians were held.

    Trudeau only knows how to hand out money, and money grub from destitute tax payers.
    The Trudeau$ and Morneau$ do not know being out of work, being over taxed. They cheat on their business taxes and family estates, like they cheat us. That is their only skill set. Lie and cheat until caught, then what? They will never be caught by an incompetent ethics moron.
    Now turned coat to scapegoat for this government!

    Trudeau and his side kick Morneau have spent billions on partying the 1st half of 2017 away. Including humongous tax spending, and tax debt. Then they include this belligerent waste of tax dollars and debt, in their financial reports, to make their government look successful! Forget the debt factor!

    Trudeau has no excuse to celebrate a win in Quebec, when the Liberals lost in Ontario. The media coverage Canadian tax payers pay for, when it comes to promoting and campaigning this government on news sites,and the fake financial news promoted to continue an effort to stimulate hiring and spending, after failing all year; is so, so ridiculous . This government is pure evil.

    To wave bye bye to 20,000 employees from Sears, and do nothing; good people with no income for many months until EI payments, no Christmas, pensions threatened, benefits cut.
    And then to pay terrorists tens of millions of dollars, is enough for the nation to vomit up this government.
    Both characters are too slick to follow! Both make me sick to follow. They should both be hung in the streets.

    I am on my knees praying for my children, and their children.

  6. I do have my policy differences with Bill Morneau, but I do feel sorry for him. A lot of the Morneau-bashing seems to be because he is a successful rich guy. There is nothing inherently wrong with successful rich people – we should have more of them, not less. Even though, like him, they appear to have more access to tax shelters, they still end up paying most of our taxes.
    My issues would be the following:
    1. A finance minister should put his/her assets in a blind trust. This ministry is the main institution for the formulation and implementation of financial and taxation policy, creating clear appearances and opportunities for conflict of interest. The ethics commissioner made a mistake in not recommending this to Morneau (and every finance minister), or the legislation under which she operates is too weak.
    2. Canada’s economy is rolling along reasonably well towards full capacity. I am a supporter of budget balance over the business cycle (deficits in recession, surpluses in cyclical peaks). We should be at least approaching balance, if not in surplus now. The finance minister (à la Martin and Flaherty) should be the one who is promoting this to his colleagues. Morneau looks weak in this respect.
    3. I’m disappointed that Morneau, as someone from the pension industry, hasn’t done more to address the aging population issue. We need to address work-to-retirement transition options, and unpopular as it is, re-establish the Conservatives’ extension of the OAS eligibility date from 65 to 67.