MNI INTERVIEW: Trudeau Must Resist Bloc Budget Demand- Manley

MNI (OTTAWA) - Canada needs fiscal restraint and a good starting place is for Prime Minister Justin Trudeau to reject the threat from Quebec separatists of forcing a snap election unless the Liberals spend billions more on seniors' benefits, former finance minister John Manley told MNI. 

“You’re always best to do the right thing, and I think in this case the right thing is really evident," said Manley, who served under former Liberal Prime Minister Jean Chretien. “In the past when we had a lot more people working in relation to the number of people over 65 it was affordable. It no longer is."

Trudeau's Liberals have until Oct. 29 to meet a demand from Bloc Quebecois Leader Yves-Francois Blanchet for enhanced seniors' benefits estimated to cost CAD16 billion over five years, enough by itself to potentially break the government's "fiscal anchor" of deficits under CAD40 billion a year. Finance Minister Chrystia Freeland is due in coming weeks to present a budget update that likely requires a confidence vote and the Liberals have already lost the support of NDP to prop up the government.

Responsible budgeting goes beyond fending off short-term political demands, said Manley, pointing to continued deficits through a pandemic rebound that took unemployment to record lows. Even with the Bank of Canada cutting interest rates from the highest since 2001 as the economy softens, Manley warned federal finances are becoming vulnerable to whenever the interest-rate cycle changes course again. (See: MNI INTERVIEW: Canada Making Fiscal And Climate Policy Mistakes: Biz Council)

FIX WHILE MODESTLY PAINFUL

“The luxury we had in Covid was historically very low interest rates, and now we’re seeing the interest portion of our national expenditure creeping up, getting close to 10% of revenue, so I think that’s a very telling point,” he said. “Canadians don’t see the benefit of the interest payments they are making-- when they are only getting 90 cents worth of government services for every dollar they give the government they start to get a little bit unhappy.”

Trudeau's main rival is Conservative Leader Pierre Poilievre, who polls indicate would win a majority government in an election that must be called by the fall of next year. His key promises include an unspecified plan to "fix the budget" and blaming Trudeau for a carbon tax Poilievre says has helped push up the cost of living. The government says its fiscal path is responsible and points to a deficit that's about 1% of GDP, far below the U.S. and some major European nations. 

Manley said interest costs are far below where they were as his ministerial career began in the deficit-busting era of the 1990s when Canada's finances were pushed to the brink. The former deputy prime minister also aid it's best to make painful choices before they are made for you. (See: MNI INTERVIEW: Trudeau Deficit Cap Strained By Election Threat)

"When I was industry minister I lost almost half my budget, and I lost 25% of my workforce,” he said. “This was not easy, which is one of the reasons I’m anxious about it, because I know how hard it is, and how painful it is for everyone involved, and if we don’t fix it while it’s modestly painful, we’re going to have to fix it when it’s really painful.”