The fiscal and economic update released by the federal government Wednesday was called a “snapshot,” but it felt more like a historical document. It reflects a massive and costly emergency that looks to be in the rear-view mirror.
The government’s first detailed accounting of the measures it took to combat the economic impact of the COVID-19 crisis was, basically, a tallying of the costs to stanch the bleeding. But the next step – getting the patient up and walking again – is already under way. It’s a very different economic problem, and one that will require a very different response.
Finance Minister Bill Morneau knows it. He’s just not prepared to say what he plans to do about it.
“Our approach will be to think about how we can grow. We will be looking towards a safe restart, negotiating that with provinces, and then focusing on growth, growth that we know will provide for jobs and opportunity for the future,” Mr. Morneau said in a news conference Wednesday, while carefully avoiding providing any information about what policies for such a growth-promoting plan will look like – let alone their potential costs.
Instead, the message was to be patient until sometime in the fall, when the government intends to issue a more detailed fiscal and economic plan.
One thing that came into focus from the fiscal update was that before the government deals with a strategy to stimulate growth, it will have to extract itself from its existing massive spending programs that were aimed at something quite different.
Up until now, the government’s economic priority has been income replacement. The main impact of the COVID-19 lockdowns was income loss, as businesses were forced to close and workers were sent home by the millions. The government rightly focused on providing what amounted to an income transfusion, with direct payments and wage subsidies.
In the fiscal snapshot document, the government spilled considerable ink patting itself on the back for that – with some justification. The Finance department estimates that without its measures, the economy would have shrunk not by the 6.8 per cent that private-sector economists forecast for 2020, but by more like 10 per cent; a few hundred thousand more jobs would have been erased from the labour market.
One can quibble with the calculations, but the gist of this assessment is bang on. The programs have certainly saved huge numbers of Canadian businesses and households from financial ruin.
But income replacement is a lifeline, not a recovery-and-growth strategy. The government now needs to direct funds to priorities that will clear the path to sustainable growth – a true economic stimulus, as opposed to a rescue package.
What would a stimulus plan look like? As a starting point, it should be directed at what the economy has lost in its deep downturn.
At the top of that list is labour. No meaningful growth can return without addressing the issues surrounding child care and schools that threaten to keep large sections of the working-age population from fully participating in the work force. But beyond that, the government will need a plan for large-scale skills retraining, domestic labour mobility and a return of immigration if it is to unlock the labour supply needed for a postpandemic growth revival.
Incentives for business investment and new-business creation will also be critical. The crisis has forced many businesses to close and many more to slash their spending; any growth plan will require reigniting the country’s entrepreneurial spirit. Loan programs will need to move away from serving as bridges over a crisis, and toward encouraging startups, technology upgrades and expansions into new business lines. A long-awaited overhaul of Canada’s tax code would be timely.
The government should also place a high priority on removing Canada’s interprovincial trade barriers. With global trade facing serious barriers, at least as long as COVID-19 remains a threat, removing the country’s considerable impediments to trade within its borders would provide an expanded domestic market that offers a new path to growth.
That the government opted not to outline its growth-renewal priorities on Wednesday is, frankly, disappointing. The recovery is already under way. There is already a compelling need for the government to shift from a plan designed to pay workers to stay home, to one designed to pay workers and their employers to put them to work.
The government demonstrated in its emergency plan that it is capable of nimble thinking and bold action. The growth plan will require no less. And the sooner the government can lay out its strategy, the sooner businesses and consumers can move forward, and financial markets can understand the spending priorities and their impact on the bottom line. Above all, growth thrives in clarity and certainty.
Let’s get to it, Mr. Morneau.
Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.