Minister of Finance and Deputy Prime Minister Chrystia Freeland speaks to the media in Hamilton, Ont., on Jan. 24.NICK IWANYSHYN/The Canadian Press
It is fitting that U.S. President Joe Biden will be in Canada this week because his economic policy will be here next week.
The big question for Finance Minister Chrystia Freeland is how far she will go to compete with the massive subsidies in Mr. Biden’s grand industrial policy.
The answer, if we are to read between the lines of a prebudget speech she gave on Monday, is pretty darn far.
At least, that’s the way it seemed when Ms. Freeland spoke in front of a group of workers at a union training centre, then told reporters that the government not only should spend money in that kind of industrial strategy, but that it must.
Failing to do so would be “reckless,” she said in answer to a reporter’s question – reckless for people like the folks standing behind her at the Oshawa, Ont., training centre of the International Brotherhood of Electrical Workers. Won’t somebody think of the workers?
So that’s the big new thing we can expect in next week’s federal budget. The industrial-sized question for Ms. Freeland’s budget is how big. How much will Canada spend to compete with the hundreds of billions of dollars in subsidies on offer in the United States?
It is, as Ms. Freeland suggested, a big issue for Canada. But weirdly, opposition politicians don’t seem to have strong opinions on the topic. Perhaps they will when the Finance Minister reveals the price tag.
Ms. Freeland’s prebudget speech was pretty much what we’ve come to expect from Ms. Freeland’s prebudget speeches. It started out with promises of fiscal restraint before moving on to the things on which government must spend.
She had already signalled three areas where Canadians can expect to see new dollars budgeted: on “affordability” breaks to mitigate the impact of inflation, on health care and on industrial strategy.
The first is a political no-brainer, in the sense Prime Minister Justin Trudeau’s Liberal politics involve telling folks that government will help them out, and the parliamentary deal with New Democrats makes it necessary to include a few NDP requests on that score.
But not too much. Ms. Freeland cautioned that the government can’t “fully compensate” Canadians for inflation or higher interest rates and “will exercise fiscal restraint.” Her words suggest the government has other places to spend.
One of those places, we already know, is health care, because the feds have to budget for the additional $46-billion in transfers and promised the provinces over the next decade.
But the big issue is industrial strategy required to compete with the economic transformation being engineered by the U.S. to create a green economy and attract advanced manufacturing there.
How big? It’s the “most significant economic transformation since the Industrial Revolution,” she said. And at the same time, democratic countries are moving to build critical supply chains through other democracies, she said. Ms. Freeland argued it’s now or never to get in on building Canada’s industrial base of the future.
“Failure to make the necessary investments in our economic capacity and in our economic future – that is irresponsible. And that is reckless.” She referred to the workers behind her, adding: “It would be reckless for the people who are here today.”
In short, she argued it’s reckless not to pour money into industry now. Certainly, competing with U.S. subsidies means spending big.
The US$280-billion U.S. CHIPS and Science Act, passed last year, poured incentives into advanced microchip manufacturing and technologies like artificial intelligence. The Inflation Reduction Act included US$370-billion in green-technology incentives, but experts suggest the subsidies could add up to US$800-billion.
The Inflation Reduction Act could do amazing things for clean technology, but it also could draw investment away from other countries, especially Canada. Would Canada spend $80-billion to compete? Or will it pick spots?
Certainly, the Finance Minister has just told us that the Liberals have decided that Canada’s economic strategy must be a direct response to Mr. Biden’s. Ottawa will “invest aggressively” in the Canadian economy of tomorrow, she told us.
At any rate, Ms. Freeland’s speech suggests the Liberals have chosen the economic narrative for their politics of tomorrow. It is looking past today’s inflation to promise good middle-class jobs – middle-class careers, Ms. Freeland emphasized – and a strong future manufacturing economy. And they are arguing there is no choice but to pay for it now.