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Canada risks plunging into unsustainable debts with a new finance minister assigned to revive the economy based on social and green policies rather than traditional resource and energy industries, the head of a key business group said.
The federal debt is already set to swell beyond CAD1.2 trillion based on measures to pull the economy through the first wave of Covid-19, Perrin Beatty, Canadian Chamber of Commerce president and a former revenue and health minister, told MNI in an interview Wednesday. Government policies before the pandemic were scaring away investment in an economy where growth was fading below 2%, making it harder to pay for new experiments now, he said.
"In the short term it was critical for the government to act, but we have to be very careful that we don't move from having one-time spending in an emergency situation to structural deficits that burden future generations," Beatty said.
Prime Minister Justin Trudeau named Chrystia Freeland as finance minister Tuesday and suspended Parliament until Sept. 23 to prepare a "Throne Speech" laying out a new economic agenda. That followed Bill Morneau's Monday night resignation amid reports of conflicts over how to arrange the restart.
Canada has yet to present a full budget for the fiscal year that began April 1 and a "snapshot" last month showed a record CAD343 billion deficit, or at 16% of GDP the largest since World War II.
"We don't know what the government's strategy at this point is to climb out of the recession," Beatty said. Trudeau's press conference on Tuesday mentioned "green" policies three times along with several references to economic fairness and never mentioned the words deficit or budget.
"We are hearing a debate starting over whether we should be abandoning the energy sector in Canada. As we look at recovery, one of our strengths in the resources sector," Beatty said. "This is an area we should be focusing on as a key area of our recovery."
Canada also abandoned its last fiscal "anchor" this year, a goal of stabilizing debt as a percentage of GDP, and lost its triple-A credit rating from Fitch. Beatty wants Canada to restore a fiscal target in the next budget update because "if there's ever a time for us to understand what fiscal responsibility is, this is it."
The recovery may still be going through the end of next year, making it more difficult to use government spending to carry the economy back to health, he suggested. The government must also avoid moving too quickly to austerity, meaning the money being spent should focus on restoring investment confidence, he said.
"The private sector has been badly damaged during the lockdown, what we need to do is to focus on how we can restore growth to the private sector and move away from a subsidies-based economy," he said.
Canada's opposition parties could trigger an election by combining to vote against a confidence motion on the speech, though there's no clear sign yet they are eager to do so given the risks of a campaign amid Covid-19. Trudeau also has the power to call a snap election. The Liberal government and their opposition in the Conservatives, Bloc Quebecois and NDP should all beware of forcing an election that puts political advantage ahead of the rebuild, he said.
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