MNI POLICY: Morneau at Finance Means Canada Deficits Stay Too

--Trudeau Must Pass Budget By Spring With Opposition Support

By Greg Quinn

     OTTAWA (MNI) - Canada remains on a path of running small enough budget

deficits to nudge down the country's debt relative to GDP after Prime Minister

Justin Trudeau kept Bill Morneau at finance in a post-election cabinet shuffle

on Wednesday.

     Trudeau's Liberals need one of three opposition parties to support a budget

due by next spring to stay in power, after being reduced to a minority of seats

in the Oct. 21 vote. Their campaign platform called for a C$27.4 billion

shortfall in the fiscal year starting in April, narrowing to C$21 billion by

2024. That plan would lower debt-to-GDP to 30.2% from 30.9%.

     Deficits could be even higher because of pressure from the NDP and Bloc

Quebecois for more spending on social programs and environmental protection. The

Conservatives may also push for extra dollars to support laid-off energy workers

in western Canada, where the Liberals were mostly shut out in the election. No

major party campaigned on eliminating deficits over a four-year mandate, and the

last Liberal government broke a promise to move towards balance in favor of the

debt-to-GDP target. 

     Trudeau could bring in some quick spending after Parliament re-opens Dec. 5

with a fiscal update like past governments have done. He's said key priorities

are a household tax cut and construction of the government-owned Trans Mountain

oil pipeline that would reduce dependence on the U.S. market where prices are

depressed. 

     The deficits haven't spooked investors, with Canadian government bond

yields hitting record lows this year as global borrowing costs dropped in line

with cuts from central banks. Ten-year bonds traded at 1.44% yesterday according

to central bank data. 

     Trudeau did make a switch on another key economic file, moving Chrystia

Freeland who was the lead negotiator on the USMCA that is currently held up by

Democrats in the U.S. Congress. Freeland went to deputy prime minister from her

old post at foreign affairs. Francois-Philippe Champagne takes over the foreign

affairs job and will also need to navigate tensions with China. Beijing

officials have curbed imports of Canadian canola after the arrest on a U.S.

extradition request of an executive at telecommunications giant Huawei. 

     Morneau as finance minister will also be responsible for overseeing the

appointment of the next Bank of Canada Governor when Stephen Poloz's term ends

in June. The BOC's independent board of directors makes a decision that Morneau

brings to cabinet for approval. The BOC also needs to work with Morneau on

renewal of a five-year agreement with the government around the 2% inflation

target that expires in 2021.

     Morneau and Trudeau didn't make any comments during the swearing-in

ceremony in Ottawa.

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

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