A money-spending Liberal version of restraint, with bigger choices coming soon

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Finance Minister Chrystia Freeland was talking a lot about fiscal responsibility in the days before the Fall Economic Statement, but that message was muddled by her fellow Liberals even before the document was unveiled.

Prime Minister Justin Trudeau’s Twitter account told us it was focused on family affordability and building the economy, while Transport Minister Omar Alghabra tweeted that the government “will continue to put money in the pockets of Canadians.”

The Liberals just couldn’t get through the whole day focusing on fiscal discipline. At heart, they really don’t want to.

So while Ms. Freeland didn’t put as much spend as Mr. Trudeau’s Liberals tend to do, she still spent billions, even while warning of the dangers of a potential recession.

And the real issue is that the Liberals have also promised a lot more spending that is still to come, and the demands are piling up. They don’t have much experience with deciding how not to spend.

Ms. Freeland can say Ottawa’s books look okay right now, but she has now effectively promised to deliver a multibillion-dollar industrial policy in a few months, in the 2023 budgets.

And there are lots of other political pressures for spending, including to deliver on Mr. Trudeau’s multibillion-dollar election promises to fund health care, or fund the defence-policy review they announced in April. Oh, and there’s a good chance a recession will blow a hole in the figures.

In this update, Ms. Freeland was working with a budgetary windfall: inflation boosted government revenues. In this fiscal year alone, it will be ahead about $30-billion more than projected in the April budget. Thursday’s statement even forecasts a balanced budget in 2027-28 – as long as nothing changes. (And it will.)

But the Finance Minister was warning of potential dark times. Interest rates are high. The economy is slowing. The statement’s charts laid out a downside scenario – a recession next year – that would kick deficits back up.

So Ms. Freeland showed Liberal restraint: she’ll only spend about half of that inflation windfall.

That still meant allocating $22-billion in additional spending over six years in Thursday’s statement, on top of $22-billion added since the April budget. And let’s not forget the April budget called for $56-billion in new spending over six years, too. Ms. Freeland’s era of restraint hasn’t exactly brought spending to a screeching halt.

The problem isn’t that Thursday’s spending was by itself massive. There were expenditures for the “money in the pockets” things that Liberal cabinet ministers like to tweet about – including cancelling all interest on student loans and providing advances on Workers Benefits – but a handful, not boatloads.

The largest single item was $6.7-billion for clean-energy tax credits aimed at helping Canada compete with the massive package of clean-energy subsidies and incentives in the U.S. Inflation Reduction Act. Canadian industry executives and government officials fear that without some kind of matching policy, investment will pour into the U.S., but not Canada.

Yet officials made it clear that that sum is only the first part of a much-larger industrial package – Ms. Freeland called it a “down payment” to come in the 2023 budget.

That means Ms. Freeland will construct a 2023 budget with a multibillion-dollar industrial policy. In the government’s eyes, that is an economic imperative to avoid putting Canadian industry at a disadvantage.

But Mr. Trudeau’s Liberals also promised in the 2021 election to pump $25-billion into health care over five years, and still haven’t delivered. With public dissatisfaction with the health care system high, it would be politically risky to leave that promise unfulfilled – in fact, the federal government will probably have to pony up more. There are other things they pledged. In the April budget, they launched a defence-policy review that was supposed to guide decisions on expanding military budgets.

In other words, Ms. Freeland has a lot of obligations coming due in a few months. And, as she herself warned, there is a slowing of the economy now that could turn uglier soon.

And what the Liberals don’t do is decide which spending they will not do.

Ms. Freeland said the government was keeping its powder dry, but restraint, in this statement, was slowing the pace of new spending. Efforts to find cost savings are modest, to say the least. The Liberals want to talk about putting more money in people’s pockets.

Thursday’s economic statement leaves a tougher test of Ms. Freeland’s new-found concern for restraint still to come. And it is coming soon.