If Chrystia Freeland needs a tool to help Canadians, she should start by freezing spending

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Finance Minister Chrystia Freeland, presumably wanting to assure Canadians that the Liberals are on top of this whole cost-of-living thing, vowed last week to “use all the tools at my disposal” to make sure that interest rates fall as soon as possible.

On its face, that is a potent promise, given the very broad powers of the Finance Minister to set both fiscal and monetary policy. Section 14 of the Bank of Canada Act, for instance, allows Ms. Freeland to issue “a written directive concerning monetary policy” to Bank of Canada Governor Tiff Macklem. Should the Finance Minister so wish, interest rates could fall today or, allowing for the necessary paperwork, perhaps some time tomorrow afternoon.

When asked, Ms. Freeland’s office was quick to say that she has no intention of using her powers under the act, and that she respects the bank’s independence. We agree with the idea of the government keeping its hands in its pockets and its thoughts to itself in regards to the day-to-day workings of monetary policy. (On that front, Ms. Freeland should eschew a repeat of last week’s statement on the central bank’s decision to forgo a rate hike.)

Besides, the problem is not that the Finance Minister won’t intervene in monetary policy. It’s that the Liberal government continues to refuse to do anything new on the fiscal front to help the Bank of Canada in its fight against inflation.

Even as inflation surged to a generational high, and interest rates climbed, the government has refused to take the minimal step of winding down its deficit spending and moving to a balanced budget and a neutral fiscal policy. Instead, Ottawa has continued to boost spending and run substantial deficits, including $33.7-billion in the current fiscal year.

The Finance Minister’s office did point to two initiatives as proof that the government is in fact taking action: the expansion of federal support for subsidized child care; and a $15-billion spending review already under way.

It’s true that child-care subsidies, to the extent that parents enter the work force or work more hours, would help to alleviate labour shortages and tamp down inflationary pressures. But the initial thrust of the Liberal subsidies has been to cut fees for families. That certainly helps households deal with the rising cost of living, but those subsidies act as economic stimulus on an already overheated economy.

Similarly, a spending review, if aggressive enough in timing and scope, could help to cool inflation. Unfortunately, the Liberal version of a spending review meets neither of those tests. On timing, the government is setting itself the extraordinarily unambitious goal of finding $500-million in savings in the current fiscal year, rising to $2.5-billion in the next fiscal year, with a five-year total of $15.4-billion. Those are laughably small savings.

Or they would be laughably small savings if the government actually intended to trim the budget by those amounts. Instead, it will spend those funds, just on different things. What’s more, the government had in hand $6.4-billion from previously announced spending over the next six years – including $3.4-billion in the current fiscal year – but chose to spend that as well, rather than to reduce overall outlays.

In reality, Ms. Freeland is exercising no discernible fiscal restraint (other than perhaps not increasing spending even more rapidly than is the case currently).

Real fiscal restraint would mean that the government, at a minimum, would stick with the fiscal plan that it outlined in the spring – a feat it has not managed in eight years – with no net increase in spending until inflation is tamed.

Federal spending would still rise by $65-billion over the next four years, but a commitment to no new spending would be a start. A federal hiring freeze, a break from eight years of vigorous hiring, would be an important part of that effort, particularly given that the government’s current plan is to simply let the deficit rise to absorb the cost of this spring’s contract settlements with its unions.

All of that, unlikely as it is from this government, would merely not make things worse, and not add to inflationary pressures. It wouldn’t make things better.

Ms. Freeland talks about using all tools to help to speed the decline in interest rates, but that is just gauzy rhetoric. There is only one tool at her disposal that would actually work: inflicting some budget pain on her government in order to relieve the financial pain that inflation and rising interest rates have inflicted on Canadian families.