MNI INTERVIEW: Trudeau Deficit Cap Strained By Election Threat

MNI (OTTAWA) - Canadian PM Justin Trudeau has scope to break a cap on deficits while bargaining with opposition leaders to survive confidence votes, or push for his minority Liberal government to make a political comeback by tackling voter priorities like housing, former adviser Tyler Meredith told MNI.

“There’s a lot of pressure on the fiscal framework today. I think it’s possible that the fiscal track could actually deteriorate a little bit in the short term," said Meredith, who has also advised Liberal finance ministers and is now with the Meredith Boessenkool & Phillips consultancy. "If it did, I’m not sure that it would be a major political problem.”

Parliament returned Monday from a summer recess just after the Liberals lost the support of the NDP on confidence motions such as budgets, and Tuesday they lost a seat his party held near Trudeau's own Montreal district for decades. While that raises the chance of a snap election before the one due in the fall of next year, Meredith said it's more likely the government will win confidence votes by offering the NDP and the separatist Bloc Quebecois one-off spending concessions. 

With all three of those parties trying to catch up with the double-digit lead held by Pierre Poilievre's Conservatives, who pledge balancing the books, it's unlikely they will come together to force out the Liberals soon just to fight a campaign from behind, Meredith suggested. “The NDP isn’t ready for an election, the NDP doesn’t want an election right now,” he said. “The Bloc is definitely a potential governing partner on some things.”

Finance Minister Chrystia Freeland in April reset fiscal "anchors" to pledge deficits no greater than CAD40 billion and lower debt as a percentage of GDP each year. Trudeau keeps pledging to continue "investing in Canadians," a path that chewed up the pandemic recovery windfall rather than seeking balanced budgets. Ministers have defended that stance by touting Canada's top credit rating and deficits around 1% of GDP versus something closer to 7% in the United States. (See: MNI INTERVIEW: Weak Growth, Election Dent Canada Fiscal Anchor)

PROBLEM WITH THE MESSENGER

Liberals can survive confidence votes around this fall's fiscal update, Meredith said. Trudeau also needs some time to seek out more credit for slowing inflation and efforts to ease a housing shortage, as well as reaping the benefits of Bank of Canada interest-rate cuts, he said. 

The central bank has cut rates three times from 23-year highs, and more appear to be coming with inflation falling back to 2%. “It needs time to bake in,” with voters, Meredith said. “The Bank is going continue to be predisposed to a much more methodical and systematic set of interest rate cuts. I don’t think you’re going to see jumbo cuts.” (See: MNI INTERVIEW: Big CPI Undershoot Unlikely- Ex-BOC Schembri)

Even with that good news, Liberals “can’t convert policy wins that they have into any material support,” Meredith said. “Part of it is because they aren’t being listened to anymore, I think there is a messenger problem associated with the Prime Minister.” Trudeau has kept nearly all of his party members publicly in line amid media reports of misgivings he can win the next election.

The quick replacement of Joe Biden with Kamala Harris raises the idea Liberals still have time if they choose to switch leaders, Meredith said. But he also sees potential for Canada to emulate moves to unite the left behind one banner recently seen in Europe.

“We will see whether there is a groundswell of discussion," about Trudeau's leadership, he said. "I don’t think there will be, but I think the biggest risk that he faces is going to be one where members of his caucus decide not to re-offer again,” Meredith said.