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MNI INTERVIEW:Spending Remains Too Hot For BOC-Ex Govt Adviser


Canada’s update budget Tuesday continues to book spending growth making it difficult for the central bank to cut interest rates, former senior government advisor Robert Asselin told MNI.

“It’s a bad tendency for this government that every fiscal exercise you find out they spent a lot of money,” said Asselin in an interview Tuesday. He was a senior advisor to former Finance Minister Bill Morneau and advised prime ministers Justin Trudeau and Paul Martin, and now is a senior VP at the Business Council of Canada.

Current Finance Minister Chrystia Freeland’s fiscal plan brings in CAD27 billion of new spending over six years, Asselin said, at a time he said the economy could worsen and drive deficits even higher. Bank of Canada Governor Tiff Macklem recently warned spending across all levels of government of more than 2% a year is starting to add to inflation already seen holding above his target until 2025.

“I think the outlook is still very optimistic compared to where it could go, including this year, if there is a recession,” Asselin said of the fiscal outlook.

Budget documents show program spending rising faster than 5% in the fiscal year starting next April. The government also again failed to meet its last fiscal anchor of seeing debt fall as a percentage of GDP each year.


The budget is based on a consensus of private economists showing the Bank could cut interest rates starting in the second quarter of next year, which Asselin again said is optimistic. Macklem may not be able to cut rates at any point next year in a bad scenario, he suggested.

Spending plans “aren’t making it any easier” for the Bank to cut rates, Asselin said, and certainly no easier than the last full budget this spring.

“The thing that’s missing from the document is a real fiscal anchor,” he said.

The government also has yet to outline how it might meet demands from opposition parties for an expensive public pharmaceutical drug program, or to fully address a housing squeeze, Asselin said. “If you consider all the risks on the spending side, pharmacare, the risks to the economic outlook, I think it’s a very fragile fiscal framework.”

The Bank of Canada’s policy rate is at 5%, the highest since 2001. Governor Macklem gives a speech Wednesday focused on the pain inflation is causing and he’s recently warned he may need to hike for an 11th time if inflation remains sticky. Earlier on Tuesday a report showed inflation slowed to 3.1% and core price measures also softened.

MNI Ottawa Bureau | +1 613-314-9647 |
MNI Ottawa Bureau | +1 613-314-9647 |

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