OTTAWA — Industry representatives are urging Finance Minister Chrystia Freeland to back away from plans to spend $100 billion in additional stimulus, saying it would needlessly swell public debt levels and could risk overheating the economy.
In her fiscal update last November, Freeland said the $100 billion in new spending would be pegged to the jobs market, which now serves as a “fiscal guardrail” to guide future spending plans. But many economists and business executives are warning that faster-than-expected economic growth and a vastly improved labour market have deemed those plans obsolete, and could instead harm the longer-term growth prospects of the country.
“I’m concerned that the minister may not have remembered what her own words were in the fall economic statement,” Goldy Hyder, chief executive of the Business Council of Canada, said in an interview Wednesday. “We don’t need the stimulus if unemployment is not a problem.”
His comments come as observers including bank executives and the Parliamentary Budget Officer question the necessity of Liberal spending plans. Prime Minister Justin Trudeau has long framed the COVID-19 pandemic as an opportunity to expand Canada’s social safety net, while at the same time saying his government would not introduce permanent spending measures that might lock Canada into endless deficits.
Unemployment in Canada peaked in May 2020 at 13.7 per cent, but has since come down to just 7.5 per cent, or only slightly higher than the 5.8 per cent posted before the global pandemic took hold. Those numbers are expected to continue improving in coming months as Canadians are vaccinated and restrictions gradually lifted.
At the same time, Canada’s economic growth projections have also gained steam: the government estimated a 2021 growth rate of 4.8 per cent when Freeland tabled her fiscal update on Nov. 30, but economists now peg that figure closer to six per cent.
“We believe the economy is going to slingshot out of the gate come summer, once we’ve all got at least one vaccine [dose] in us,” Hyder said.
Adding to concerns over higher projected economic growth, Canadian households are also sitting on record high levels of cash following more than a year of lockdowns, and in part due to the generous relief programs dolled out by the Liberal government. Freeland herself has referred to the sizeable household savings levels as “pre-loaded stimulus” that would be automatically unleashed once pandemic restrictions are lifted.
But adding to the anticipated flood of household spending only threatens to push interest rates higher, Hyder said. U.S. President Joe Biden’s $1.9-trillion stimulus package, which is expected to spillover into the Canadian economy, is yet another reason to ease off Freeland’s plans.
“You’ve got all this liquidity in the hands of businesses and in the hands of Canadians, and you’re going to have government go out there and do more? That runs the risk of inflation,” he said.
The Business Council of Canada is also calling on Freeland to abandon any plans to re-introduce the debt-to-GDP ratio as the government’s main fiscal anchor, saying it would not enforce fiscal restraint in the near term. His group is instead calling for a measure that would ensure government set aside 10 per cent of revenues for the purpose of debt servicing costs, similar to a policy laid out by former Bank of Canada Governor David Dodge.
“We don’t even want that as the mechanism, we think that would be a free pass for them for a decade or two, not having to worry about deficits and debts,” Hyder said, adding that he was concerned the government might “get cute” with a fiscal anchor measure that gives them years of leeway.
David McKay, chief executive of Royal Bank of Canada, made headlines last week when he called for restraint in Freeland’s spending plans, cautioning that “we don’t want to overdo this.”
In December, Parliamentary Budget Officer Yves Giroux warned that “the size and timing of the planned fiscal stimulus may be miscalibrated,” saying that employment levels were likely to return to pre-pandemic levels well before the $100-billion in funds has run its course. The spending is expected over a three-year period.
“In other words, it could be too much and too late,” he told reporters at the time.
The C.D. Howe Institute, a Toronto-based think tank, also said in a report last week that the Trudeau government should abandon its stimulus plans, and even consider tax hikes in some areas to fill the fiscal gap.
Robert Asselin, vice-president of policy at the Business Council, said the Liberal government’s propensity for stimulus measures points to a deeper belief system that has taken hold in the economics community, in which public spending measures are viewed as healthy and necessary regardless of the broader context of that spending.
“I think there’s a lack of reason here,” he said, citing the willingness of various governments during the pandemic to pump more money into the economy than was ever lost to begin with.
For the Trudeau government in particular, Hyder said, there appears to be a strong preference for redistribution over expanding Canada’s economic productivity, which could hinder growth opportunities years down the line.
“It seems that there’s only emphasis on one side of the ledger,” he said. “It’s all spending. If you add the phrase ‘-acare” after any program, it’s a good idea. But who’s going to pay for it?
Source: National Post Quebec Nordiques