How a diminished Department of Finance brings into question Canada's fiscal future

Finance Minister Chrystia Freeland, right, and Prime Minister Justin Trudeau.

OTTAWA — The Trudeau government has been unacceptably opaque in its handling of the national purse, several former senior Finance officials say, a concern that reflects deeper disagreements in Ottawa between the public service and the Liberal government’s lofty spending plans.

Their worries include what some officials describe as an increasingly centralized power base within the Prime Minister’s Office, which intensified under the Harper government following the 2009 recession and has continued under Prime Minister Justin Trudeau.


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spoke with six former Department of Finance officials, including two former deputy ministers, who expressed concern over a lack of fiscal transparency in Ottawa at a time of unprecedented deficit spending. The people stressed that there has always been some degree of disagreement between the PMO, who makes decisions based on political calculations, and the much more staid Department of Finance, which has long acted as a sort of sober second thought in Ottawa.

But those inherent divides have deepened in recent years as the Trudeau government fixates on expanding the social safety net, said David Dodge, who served as deputy minister of finance from 1992 to 1997 before becoming governor of the Bank of Canada. Trudeau’s policies have broadly centred around redistribution, with much less regard for tackling difficult economic questions or making efforts to cut unnecessary spending.

“The policies of the government in power, and the proclivities of the current prime minister, are not particularly oriented towards the hard work of generating economic growth, and that can make things difficult for the Department of Finance,” Dodge said.

Differing policy views between the two has in turn prompted deeper questions about Finance’s role in Ottawa — and uncertainty over who will ensure sound fiscal management in future.

The federal government has yet to provide an updated fiscal anchor since the beginning of the pandemic, leaving little indication of how or when it might begin to rein in COVID-19 emergency spending.

Economists are nearly unanimous in their support for the $381-billion deficit Ottawa plans to run in 2021, saying it was a necessary attempt to hold over the Canadian economy.

But a lack of accountability around those spending measures has raised eyebrows. That was particularly the case when Finance Minister Chrystia Freeland tabled her fiscal update on Nov. 30, where she promised between $70 billion and $100 billion in stimulus spending over three years while declining to detail where a single cent of the funding would go.

“The lack of transparency around the government’s intentions in its economic and fiscal forecast is not acceptable in a democracy,” said Don Drummond, who held several senior positions in the Department of Finance over his 23-year career. “I think everyone should be concerned about this.”

Eleven days later, Ottawa announced an entirely new package of spending, this time $15 billion in subsidies to help Canada exceed its Paris climate targets. While developed economies including the U.K. and Australia have tabled budgets during the pandemic, the Liberals have only provided high-level spending in two separate fiscal “snapshots.”

That apparent disregard for basic fiscal hygiene plays into a much longer-running dissatisfaction among some over the increasingly vapid nature of modern budgets.

Many former Finance official will talk nostalgically about the more straightforward, no-nonsense budgets tabled by past governments. Dodge can recall joining the department in 1972, a year when Ottawa ran a 60-page budget, many of the copies stamped onto paper using an old mimeograph.

The fiscal update by Freeland ran 223 pages, each one crammed to the neck with political jargon about “investing in Canadians” or the “future shared prosperity” of the country. That sort of “puffery” has always existed to some extent, but has accelerated in the last decade, Dodge said.

“Budgets used to be budgets,” he said. “They were always political documents, but they were also built around the numbers and some explanation of those numbers.”

The absence of clear language in modern budgets is largely a result of a wider shift in Ottawa, where the balance of power is increasingly centralized in the Prime Minster’s Office. Scott Clark, who replaced Dodge as deputy minister of Finance in 1998, said that shift has had a particular effect on the role of the department.

“I think the Finance Department has been a bit diminished in terms of its positioning in the city and its power base — not just recently but starting under Harper,” said Clark, who served as deputy minister from 1998 to 2001.

Clark and others emphasized that the PMO has always been the final decision-maker in Ottawa, and often disregards the advice of the department in favour of politically sexier policies.

But the propensity for the PMO to drive its own policy began to accelerate under Harper, who put immense emphasis on controlling his political message from the centre. That has continued in much the same way under Trudeau, where Liberal ministers have for years stuck to narrow talking points almost without exception.

The Harper government introduced an internal policy that sought to create greater transparency across government departments in Ottawa, forcing them to provide spending estimates to the PMO on new proposals.

 David Dodge responds to reporters questions concerning the Monetary Policy Report, at a news conference in Ottawa, Jan 24, 2008.

The move actually gave each of the departments more clout, according to some officials, and provided the opportunity to pitch spending proposals directly to the PMO. In practice, that indirectly lowered the dependence of the PMO on spending proposals drafted by Finance.

Some department officials including Clark are hopeful that the shifting power balance could be at least partly corrected under the leadership of Michael Sabia, who replaced Paul Rachon as head of the department earlier this month.

It remains unclear whether anything will change under Sabia, a former telecoms executive and head of Quebec’s pension fund. In a Globe and Mail op-ed in early March, Sabia proposed a suite of ambitious (if vague) policy changes to help guide Canada out of the pandemic, and called on the Trudeau government to “avoid the trap of incremental, piece-by-piece action that is so often the reflex of bureaucracy.”

Clark says his appointment could “re-establish Finance in its leadership role.”

It’s a correction that is long overdue, according to those who see Finance’s role as a crucial backstop within the federal government. As the Liberal government floats expensive and seemingly permanent measures to “build back better” out of the pandemic, some see that role as more crucial than ever.

“Their ability to push back against dumb ideas, or to ask where the money is going to come from, has gone out the window,” said one former finance official who spoke on the condition of anonymity.

It’s not a unanimous view, both within and without the department. Jennifer Robson, professor at Carleton University specializing in national finance, said claims about a diminished Department of Finance are often comparing current circumstances to the early-and- mid-1990s, when the department had the full ear of the Chrétien government.

Debt costs at the time were six times the current rate, and foreign governments and investment funds had stopped buying Canada’s bonds, prompting a fiscal reckoning in Ottawa. Austerity budgets came soon after, driven in part by a PMO and finance minister who swallowed the department’s prescription pills.

“There is always a tendency to yearn for the good old days,” Robson said.

“People have been complaining about the centralization of power in the Prime Minister’s Office since at least Trudeau senior,” she said.

That much was understood by Justin Trudeau himself, who ran in the 2015 election partly in opposition to the central governing style of Harper.

“One of the things we’ve seen throughout the past decades in government is the trend toward more control in the Prime Minister’s Office,” Trudeau told the CBC’s Peter Mansbridge in a 2015 interview. “Actually, it can be traced as far back as my father, who kicked it off in the first place. And I think we’ve reached the end point on that.”

Regardless of the future position of Finance within Ottawa, all officials agreed that the federal government needs to address some of the major economic issues of the day, and do so while adhering to clear fiscal guidelines. That would likely mean a reorientation toward ensuring that private-sector operators can reach full capacity, they said.

Economic growth even before the pandemic was set to average just 1.8 per cent over the next five years, which has since fallen to just 1.5 per cent growth. That kind of lag points to the need for Canada to introduce meaningful but perhaps less sexy policy changes: creating truly free inter-provincial trade, cutting regulations, and helping innovative companies to scale up.

Dodge said that the government has been long on promises to rejuvenate the economy. But it has been far less enthusiastic about ensuring that its goals are met, including anything from planting trees to funnelling billions of dollars into infrastructure projects.

“It’s a lack of discipline and a lack of focus on actually delivering,” he said. “You send out a press release and that’s seen as the end game, whereas the real issue is in actually governing.”

Source: National Post Quebec Nordiques