MNI POLICY: Canada Saving Fiscal Firepower For Next Downturn

--Trudeau Gives Fin Min Morneau Mandate Letter Before Fiscal Update

By Greg Quinn

     OTTAWA (MNI) - Canada should save some fiscal firepower for combating an

economic downturn if necessary, Prime Minister Justin Trudeau told his finance

minister days before he's scheduled to deliver a budget update.

     The federal government should also protect its AAA credit rating and

continue with a plan to reduce debt relative to GDP, Trudeau wrote in a mandate

letter to Bill Morneau published Friday. 

     "Preserve fiscal firepower in the event that we need to respond to an

economic downturn" was listed in the letter as a top priority. 

     Morneau has said he will deliver a fiscal update before Christmas including

a household tax cut that was promised before his Liberal Party won a minority of

seats in Parliament in an Oct. 21 election. All major parties campaigned on

platforms of continuing budget deficits, a shift from past arguments about

whether the Liberals should return to balance.

     BOC Governor Stephen Poloz has suggested fiscal stimulus can help blunt the

need for interest-rate cuts to keep the economy close to full output. Poloz has

held a 1.75% rate this year that is now the G7's highest as other central banks

cut, and said this week he will include any fiscal boost in the economic

forecast prepared for his next decision in January.

     The letter's call for saving firepower follows an August memo finance

department officials sent Morneau saying fiscal policy may need to take on a

bigger role in any downturn, because the BOC has less room to cut than in past

recessions. 

     Consumers who have powered an economy weakened by trade wars also have less

room to step up. Statistics Canada said Friday the ratio of household disposable

income going to debt payments reached a record 15% in the third quarter, and the

total debt-to-income ratio of 176% rose back toward a record high.

--MNI Ottawa Bureau; +1 613-314-9647; email: greg.quinn@marketnews.com

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