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Canadian Prime Minister Justin Trudeau on Friday told his finance deputy to spend as much as needed in the near term to sustain the economy through the pandemic, and avoid permanent new spending while refocusing on curbing climate change and income inequality.

The mandate letter to Chrystia Freeland came months after she was appointed to replace Bill Morneau last summer and among a batch of new letters sent to the entire cabinet after a shuffle earlier this week. The main thrust of policy remains on track with a fiscal update given in November that laid out a deficit worth almost 20% of GDP to top major economies and no specific fiscal "anchor" to bring things back to balance even over the medium term.

"Preserve Canada's fiscal advantage and continue to be guided by values of sustainability and prudence by presenting a plan to regrow the economy and presenting a new fiscal anchor to guide this work," read the letter. "You will use whatever fiscal firepower is needed in the short term to support people and businesses during the pandemic, and will keep supporting the economy with emergency measures until the economy improves. Doing so, you will avoid creating new permanent spending.''

Trudeau and Freeland have said that deficits over the next five years, including an extra CAD100 billion of stimulus even after the economy rebounds, are affordable given record low bond yields and Canada hanging on to triple-A credit ratings from two of three major agencies. Sources have told MNI the emphasis so far on messages of social programs suggest it will be difficult to hold to any fiscal anchor.


"Going forward, we must preserve Canada's fiscal advantage and continue to be guided by values of sustainability and prudence," the letter said.

"You will also lead the creation of a resiliency agenda for Canada's longer-term post-pandemic economic recovery, including actions to transition to a greener, more inclusive and more prosperous economy. You will also review our debt management strategy," Trudeau wrote Freeland.

The letter also reiterated the goal of restoring the 1 million jobs still lost in the first wave of the pandemic, and to advance work to fight income inequality with new taxes. Canada must also impose its own taxes on large foreign internet firms "no later than 2022" if there is no international consensus on those rules.