Finance Minister Bill Morneau's third budget bears the title "Equality and growth". It is not quite a do-nothing budget, but it is obvious that Morneau and his boss, PM Justin Trudeau, are already looking ahead to the October 2019 election. The Spring 2019 budget will no doubt roll out some major measures that are only hinted at in this week's document.
The principal example here -- and a thoroughly good thing -- is the possible introduction of a national pharmacare plan. Absurd as it may seem, Canada is the only country whose publicly-funded health system does not cover prescription pharmaceuticals for most of the population. A special task force has been set up to figure out how to do this; it will be headed by former Ontario Health Minister (and Cliff Richard lookalike) Dr. Eric Hoskins, who has just overseen implementation of a partial pharmacare plan in Ontario. You can bet your life that the task force will have a plan ready to launch come budget day next year; whether it will have ideas on defraying the estimated C$19 billion annual cost is another question.
So what about Equality and Growth? The equality agenda means more spending, albeit spread over several years, on programs to encourage more female participation in the workforce and to address the seemingly intractable problems of Canada's indigenous population. The government has convinced itself that bringing more women into the workforce, and ensuring that they are paid the same as men, will add C$150 billion to GDP over the next five years. There is even (no tittering in the back row!) something called a Feminist International Assistance Policy, which will receive C$2 billion in fresh funding over the same five-year period.
Oddly, the budget has nothing to say about the biggest equality issue of all -- the rising inequality of overall income distribution between "the 1 percent" and the rest of the population. Closing tax loopholes and cracking down on offshore tax havens were major themes in the Liberals' 2015 election platform, but after some early desultory measures, Morneau seems to have given up. The most egregious loophole of all, the favourable treatment of employee stock options, is still in place. If, as most of this week's budget implies, the Liberals will again be seeking to outflank their opponents on the left come election time, the failure to deal effectively with this issue will represent a significant Achilles' heel. Judging by his initial response to the budget, NDP leader Jagmeet Singh already recognizes this.
As for growth, Morneau is hoping for the best and not spending much time preparing for the worst. The economy is set to slow gently from the heady pace seen for much of 2017 -- indeed, this is already happening -- but is expected to continue expanding steadily through the five-year forecast horizon. Morneau acknowledges the risks posed to the Canadian economy by the uncertain future of NAFTA and the recent US tax cuts, but the budget includes no specific measures to address either. This may, of course, be a smart approach: excessive fretting about NAFTA could well trigger a damaging loss of confidence in the business sector. The only thing resembling a provision for risk is the usual C$3 bn contingency built into the numbers, something first introduced by Paul Martin way back in the 1990s. That would not go very far if things really started to go sideways.
When Justin Trudeau boldly announced his willingness to start running budget deficits in the 2015 election campaign, it represented a return to Keynesian economics. The economy was still struggling to gain traction after the global financial crisis, and unemployment was unacceptably high. It is much harder to make the case for fiscal stimulus today. The Bank of Canada has been warning for months that the economy is very close to full capacity, and despite some odd employment numbers in January, the unemployment rate is close to multi-decade lows. Bank Governor Stephen Poloz is set to raise rates by at least a further 75 basis points this year in an effort to prevent inflation from moving above the 2 percent target. Nothing in this budget makes Poloz's job easier.
Against this background, the total absence of any real commitment to deficit reduction is troubling. A deficit of C$18.1 bn is foreseen for 2018-19, just over $1bn lower than in the year just ending, and the shortfall is projected to fall only to C$12 bn by the end of the five-year planning horizon. Tory leader Andrew Scheer has been quick to seize on this, reminding voters that back in 2015, Trudeau promised that the budget would be brought back into balance by 2019. Indeed, Scheer pointed to a rather absurd Department of Finance study that projected no return to balance until 2045. Fiscal irresponsibility shapes up as a major theme for the Tories at election time.
All in all, then, this is an old-fashioned Liberal tax-and-spend budget, except without the tax part. There are no significant revenue raising measures in the budget, but there are a whole lot of spending plans that will be very expensive, assuming they are actually delivered. The Liberals are doubling down on what won them the election in 2015, but times have changed, and this is a much riskier approach now than it was back then.
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