MNI INTERVIEW: Trudeau Has ‘De Facto Majority’ on Deficits

Justin Trudeau will press ahead with outsized deficits even after failing to secure a majority government in Monday's election, and his own leadership of Parliament may be free of significant challenges after a campaign where opposition leaders also had setbacks, Peter Donolo, a top adviser to former Liberal Prime Minister Jean Chretien, told MNI.

Monday's election was the second in two years with an inconclusive result and Donolo said the fact no major party cracked one-third of the popular vote means Trudeau's top rival Erin O'Toole will avoid another quick rematch. O'Toole faces dissent inside Conservative ranks after his bid to grow support by becoming more centrist alienated his right wing, and other parties face financial and organizational difficulties if they go back to the polls, Donolo said.

The Liberals won 158 of 338 House of Commons seats to 119 for the Conservatives, leaving the balance of power with the socialist NDP and the Bloc Quebecois, which only runs candidates in Canada's main French-speaking province. Those parties have supported more cash for Liberal priorities, meaning the real danger is red ink instead of a nonconfidence vote rejecting Trudeau's plan to add CAD78 billion of deficits over the next few years.

"The Liberals have a solid majority of support among members of Parliament for the platforms that they want to introduce, particularly on the childcare initiatives and climate change," said Donolo, former Liberal Prime Minister Jean Chretien's head of communications and now vice chairman at Hill+Knowlton Strategies. "They've got a de facto majority to do that when you combine their votes with the NDP and the Bloc."

AVOIDING TOUGH CHOICES

The government will re-open Parliament with a traditional speech outlining major priorities and implement some of them through a fall fiscal update rather than a full budget, Donolo said. The government will be in no hurry to cut off the expensive worker income supports put in place when the pandemic struck, he said, or to lay out a plan to rein in record deficits.

The Liberal plan should give a small boost to GDP this year and next, sources have told MNI, and Donolo echoed business groups that say the money isn't focused enough on making the country more competitive. Canada has longer term problems with a resource-based economy dependent on a more protectionist U.S. market, and a big social safety net that gives less scope for effective new programs, Donolo said.

"My concern is that this government, and this government in combination with the NDP, they aren't going to be prone to make difficult choices," he said. "This government has felt that they can have it both ways, that they can use the credit card to kind of keep us going forward, and without any consequences because they feel paying it off is manageable," Donolo said.

The only Liberal "fiscal anchor" laid out in the campaign was to make sure the debt-to-GDP ratio declined each year, while adding deficits over the next five years. Trudeau and Finance Minister Chrystia Freeland say locking in low interest rates with longer-term bonds and Canada's low debt before the pandemic makes it all affordable.

TRUDEAU'S POSITION SECURE

"This goes way beyond the pandemic, I mean we're into a long run of chronic deficits," Donolo said.

Donolo advised Jean Chretien in an era where Paul Martin slayed crippling deficits and later fought a bitter internal fight to become Prime Minister himself. Today Donolo said that while the fiscal problems may be creeping in, so far Liberal political tranquility rivals the era of Nobel Peace Prize winner Lester Pearson in the 1960s.

"I don't think he's going anywhere," Donolo said of Trudeau. "He's the first Liberal leader since Pearson 50 years ago who doesn't have a replacement skulking around in the mix and hoping for him to trip up. That's good for him and it means no one is going to undermine him from inside."

Still, it's unclear whether Trudeau will wish to stay on to eventually contest his fourth election, Donolo said.

After seeing the anger from voters about an election in the middle of a pandemic, Trudeau "got the message that people want governments to serve as long as they can," he said. "It's like a zombie Parliament, it didn't die, it just keeps on going."