MNI INTERVIEW: Carney Plan Weak On Trump Proofing, Vote Appeal

Prime Minister Mark Carney's first budget falls short on fixing damage from Donald Trump's tariff war and appealing to voters hurt by a cost of living squeeze that underpinned his electoral win of a minority government, a top fiscal expert told MNI.

The fiscal plan rings up a CAD78 billion deficit that's the largest in history outside of Covid and almost CAD200 billion of extra deficits over five years. Tuesday's budget lacks details assuring Canadians the money is being put to good use according to Genevieve Tellier, a University of Ottawa professor who has contributed to almost two dozen books on government and fiscal policy.

“That’s not a good platform to go into an election because it’s not detailed enough. That’s a main challenge,” she said. 

Carney needs some opposition votes to pass the budget and avoid a snap election though it would be almost unprecedented for other parties to reject the first one after a general election. 

“Are we borrowing and putting that money to the best of use? That’s going to be for Carney and Champagne to sell that. I’m not convinced because it’s very general,” Tellier said in an interview late Tuesday from the budget presentation room.

Carney said Wednesday in response to a question from MNI that “any deficit financing is for the investment that is going to build this economy," and “we’re in a situation where the change in U.S. tariffs, where the uncertainty caused by all the changes in the world are holding our economy back.”

STUCK IN OLD WAYS?

The budget's focus on tax credits and industrial incentives appears more in line with the playbook of past Liberal and Conservative leaders than what Carney bills as the biggest transformation of the economy since World War II, Tellier said. (See: MNI INTERVIEW: Supply Damage Supports BOC Hold- Dal's McNeil)

“In truly industrial policy you would have something for the automobile industry, for the aluminum, steel, et cetera. I did not see that in the budget," she said.

She also pointed to comments from Francois-Philippe Champagne about hoping government investment would unlock many more dollars of private investment as signs Carney doesn't want much direct control of production.

That also raises the question of Canada remaining stuck in a historical pattern of companies extracting raw materials and sending them to the U.S. for more lucrative processing, she said. “If we do the same thing, we take the resources and we ship it abroad to have it transformed, we haven’t changed things that much.”

CANNOT TRUMP PROOF

There is some commitment to keeping more government contracting within Canada but not that much on how to reduce the three-quarters of exports that go to the United States, she said. 

“We cannot Trump proof, because we will always be dependent on the Americans," Tellier said. "We are a small country, very low density so just shipping goods from one end to the other is more costly.”

The budget seeks to shift the debate from inflation and a housing squeeze to jobs threatened by the trade war and that may not resonate with voters, she said. “The fact we don’t talk about cost of living, which is still there, is a question mark for me.” (See: MNI: Trudeau Deficits, Not BOC, Drove Covid Inflation- CD Howe)

The five-year outlook also has no plan to return to balance and broke a platform commitment of lowering the debt as a share of GDP. Leeway for big deficits may be limited even after the shocks of the pandemic and tariffs, Tellier said.

“It may be temporary. I think that Canadians are more conservative than what you think, they are more keen for fiscal responsibility,” she said.