You had to admire the sharp turn of Chrystia Freeland’s segue.
“Our economic plan is working,” the Finance Minister said in her speech to the Commons on the Liberal government’s fall economic update. Then with barely a beat, she said she can’t deny the “difficult reality” many Canadians are facing. “Canadians are worn out, frustrated and feeling the squeeze.”
It was a remarkably short rhetorical distance to travel from the plan-is-working to things-are-looking-ugly. But segues were the theme of the day. The rolling cavalcade of spending that the Liberals typically pack into every fiscal outline was more or less put on pause. The Liberal government is finally feeling a squeeze of its own.
Payments to service the debt are up, crowding out other things. There’s a lively fear that more spending would fuel inflation. The economy is fragile. Deficit projections for the medium term are swelling. And the government’s own fiscal targets don’t leave much room for big new public projects – such as the promised national pharmacare program that is key to the Liberals’ survival deal with the NDP.
What’s a Liberal finance minister to do?
Buy time.
Hit pause on big new spending. Finance housing with loans that don’t show up on the deficit. Come up with a series of non-spending niche measures to signal a consumer-friendly desire to tackle affordability. And outline a whole bunch of good intentions about what you plan to do.
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Of course, Ms. Freeland’s fall statement didn’t bring Liberal spending to a screeching halt. There was still $20.8-billion more in spending over six years than outlined in the March budget. It’s just that most of it, including massive incentives for electric-vehicle battery plants, had been already announced in the eight months since that budget. Relatively little was added on Tuesday.
And Ms. Freeland sure made it sound like the economic statement’s lighter acceleration of spending isn’t really what the Liberals believe in. She told reporters over and over again that the Liberal government “understands the need to invest” – in the daily lives of Canadians, and in the economy, and housing, and so on.
Tuesday’s numbers nonetheless presented a new tone for Ms. Freeland and the Liberal government, even if the words didn’t.
The relative restraint was made necessary by interest rates and concern about inflation and potential recession, so she mustered thousands of words in promises to act on the angst of those frustrated Canadians.
The biggest things in the document were plans to stimulate spending on housing construction, notably adding $15-billion to a loan program for apartment construction – which doesn’t count toward the deficit – and spending $1-billion over three years on additional affordable housing.
But apart from a small measure to tighten tax treatment for short-term rentals such as Airbnb in some jurisdictions, there wasn’t a new move geared toward an immediate impact on the housing crisis.
There was a list of non-spending measures dressed up to signal a fight for affordability, including more tweaks to competition law, a promise to crack down on various consumer fees and investigate mobile-phone roaming fees, and a mortgage charter that tells banks they should try to smooth out mortgage renewal by doing things like extending the amortization period. And there were a whole lot of statements of intent to do things “in the coming months.” Short on goodies, they relied on filler.
The good news was precisely the relative paucity of new spending announcements. And Ms. Freeland set a medium-term target for keeping the deficit to less than 1 per cent of gross domestic product as of 2026-27.
That might not sound like much, with an election slated for 2025, but the deficit projections three or four years down the road are already so close to those targets that there isn’t much room for new programs – such as the national pharmacare program that is at the heart of the Liberals’ deal with the NDP for parliamentary support that keeps the government in power. Ms. Freeland danced around the question about whether such funding would be available.
All of this is a sign of the tight spot that Prime Minister Justin Trudeau’s Liberals are now in, in fiscal policy and in politics. Their political DNA has been about spending their way out of trouble. With this pause, they bought time – in the hope there will one day be room to spend again.