Pedestrians are silhouetted while crossing a downtown street at sunrise in Vancouver, B.C., on Jan. 26, 2015.DARRYL DYCK/The Canadian Press
Bill Morneau was the Canadian minister of finance from 2015 to 2020.
In a world characterized by constant upheaval, Canadians have endured an extraordinary series of disruptions over the past few years.
From the shock of the COVID-19 pandemic to the wars in Ukraine and the Middle East, coupled with the unpredictable fluctuations of global inflation and interest rates, it’s understandable that many feel overwhelmed by the pace and scale of change.
Having once stood at the helm of Canada’s finances, I empathize with my former counterparts. The challenges that finance ministers face today are more formidable than in recent history.
These global upheavals are not only exerting immense pressure on fiscal budgets but will act as impediments to economic growth as well. I acknowledge how difficult it is for a finance minister to get the balance right, between reining in expenditures and spending to spur growth.
But it can be done.
Which is why I believe the right policy course is not just as clear today as it was when I was writing the budget, but even more so.
Our policy direction should remain focused on prudent fiscal management, given the heightened uncertainty and mounting fiscal constraints. And in the face of daunting economic headwinds, we must redouble our efforts to channel available fiscal resources toward initiatives that foster growth.
Since my tenure in politics, the obstacles to growth have become even more pronounced, particularly in Canada, where productivity has stagnated. Our declining GDP per capita only underscores the urgency.
Globally, three major trends are driving the necessity to enhance fiscal resilience and prioritize growth:
First, long-term structural fiscal stresses are mounting, driven by demographic shifts, the imperative of climate change, increased defence spending, and (in Canada) the need for Indigenous reconciliation.
Second, if we are entering an era of continuous disruption, pressures on government resources will only escalate. A greater allocation of funds will need to be set aside for economic stabilization in the face of more frequent macroeconomic shocks.
Third, higher interest rates and decelerating long-term growth will diminish fiscal manoeuvrability. When the economy grows at a much faster pace than the cost of borrowing, as it was when I was finance minister, it’s easier to manage the debt burden. That’s not a luxury we have right now.
These three converging trends pose a significant risk of a downward spiral, where fiscal capacity is eroded by competing demands, leading to diminished resources for growth-enhancing initiatives. It’s imperative that we not fall into this cycle.
The recent record in Canada on this front is mixed.
Federal initiatives such as the $4-billion Housing Accelerator Fund are positive in their impact. But a greater focus on research and development or investments in our productive capacity would better demonstrate a commitment to fostering growth.
Other planned expenditures such as those on dental care and pharmacare, as important as they may be, won’t yield significant economic benefits.
Moreover, substantial investments in Canada’s green investment framework warrant careful scrutiny to ensure taxpayer returns. Individual bets on one sector or on a few companies are by definition more risky than broad-based investments in R&D and innovation.
It’s very hard to achieve all three main fiscal objectives: focusing on growth, funding social programs and being prudent at the same time. The macroeconomic environment was more conducive to achieving all three goals concurrently before the pandemic. It’s much harder today.
But governing is about making choices. The truth is fiscal prudence and growth are necessary conditions for creating fiscal capacity required to finance social spending. The proper sequencing is that a growth agenda should come first, then you can spend. Think of it as a timing issue.
Striking the right balance between immediate social needs and long-term fiscal sustainability is paramount. History reminds us that ill-considered fiscal planning can jeopardize a nation’s ability to finance vital social programs.
Good social outcomes always start with prudent fiscal policy and healthy economies.
We know that smart government policy that allocates resources to growth can make a big difference. Infrastructure has been a success story for Canada’s economy thanks to the foresight we had to invest in our future almost a decade ago.
These investments in infrastructure continue to be transformational.
But the disproportionate reliance on public-sector capital also underscores the urgency of addressing more profound growth and investment challenges in our economy. There’s still a lot of work ahead, especially in creating the right conditions for private-sector investing, and we’ll need plenty of fiscal capacity to get the job done.
It’s easy to understand how in a time of tightening budgets, enthusiasm for pro-growth measures can wane. But history tells us that neglecting growth will only backfire.