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Canada is moving even further away from returning to a fiscal "anchor" that would boost business and investor confidence through the rebuild following Covid-19, Perrin Beatty, Chamber of Commerce president and a former revenue and health minister, told MNI.
Prime Minister Justin Trudeau's relaunch of Parliament last month included a list of new social spending plans that were unaffordable even before the pandemic pushed government debt to at least CAD1.2 trillion, he said in an interview. Since then, even more spending has been added as Trudeau's Liberal government sought opposition support to pass confidence measures and avoid a snap election.
"The government chose to take the Christmas tree approach, where there was an ornament there for everybody," Beatty said in an interview late Friday. Earlier on Monday, he interviewed Trudeau as part of the chamber's annual conference where the prime minister reiterated his priority during the pandemic is supporting families, not a budget rule.
The government is hitting the longest stretch since Canada was founded in 1867 of a period without a full budget, and Beatty said it's vital Trudeau quickly deliver at least an interim update on the country's finances. The government's excuse that the economy is too uncertain doesn't wash since companies must deliver budgets, said Beatty.
SIGNS OF DISCIPLINE
"Investors are looking for signs that there is going to be some discipline in Canada," he said. "The question the government needs to ask itself is, if there wasn't room in the fiscal framework pre-Covid to pay for this stuff, how is there room in the fiscal framework now?"
Finance Minister Bill Morneau in July estimated a record CAD343 billion deficit worth around 15% of GDP, and was later replaced amid anonymously sourced media reports he clashed with Trudeau over spending plans. Parliament's budget office has also said without a major second wave the deficit in the fiscal year starting next April could narrow to about CAD80 billion, which would still be a pre-Covid record.
The new programs may create a "structural deficit" that goes beyond the broadly supported measures to get firms and families through the pandemic, Beatty said.
The government should be giving more focus on aid for major industries like airlines to prevent mass layoffs, Beatty said. It will also likely quickly rework a rent subsidy program that was little used because it put landlords in control of the money and only if they accepted losses, Beatty said. Many small firms could go under in the coming weeks if they can't make rent or see a way to keep paying workers.
HITTING THE WALL
"More and more businesses are going to hit the wall," he said. "They are going to be forced as they look at the winter and ask themselves: can I continue to do this, or if I have to cut my losses at this point and let people go?"
There's also less chance today of a surge in U.S. demand to pull Canada out of bad times. Republicans have shifted to discourage free trade, on top of longstanding concerns from Democrats, Beatty said. Canada sells 75% of its exports to the U.S., a flow threatened when President Donald Trump flirted with ripping up the Nafta trade pact and slapped tariffs on Canadian steel and aluminum citing national security concerns.
"We would be foolish to assume that a change in government, with or without a change in the presidency, with or without a change in Congress, would result in much more trade-friendly policies where Canada is concerned," Beatty said.