New finance minister Chrystia Freeland in difficult spot between fiscal restraint, broader social spending

OTTAWA — Chrystia Freeland faced calls on Tuesday to rein in record-high deficit spending, even as the new finance minister and some Liberal insiders appear keen to expand the country’s social safety net.

Freeland was officially named Canada’s first female finance minister, replacing Bill Morneau, who served in the position since Prime Minister Justin Trudeau was elected in 2015. She takes on the role as the federal government prepares to post a $343-billion deficit next year, or roughly 16 per cent of GDP, dwarfing any fiscal shortfalls previously seen in Canadian history.

Many economists and industry groups are calling on Freeland to establish clear fiscal targets and a long-term plan to return to economic growth, saying that a failure to address sky-high spending could have painful consequences.

But those calls appear to run counter to the political posture of the Trudeau government, particularly as it seeks to woo the NDP with a more socially-oriented spending plan.

“This is our moment to change our future for the better,” said Trudeau Tuesday announcing the prorogation of Parliament until a throne speech on September 23.

in the same conference, Freeland echoed the prime minister in saying that Canada’s plan for the future needed to be green, equitable, inclusive and focused on jobs and growth.

Freeland has long been viewed as one of Trudeau’s trusted ministers, overseeing the negotiation of a new NAFTA deal with a bellicose U.S. President Donald Trump. She has also been outspoken about the need for social reforms, and penned a book in 2012 that focused exclusively on the problem of wealth inequality and how to address it.

· Trudeau prorogues parliament, ending WE investigations and leaving Commons empty for weeks
· Julie Payette, rebellious and embattled Governor General, rubber-stamps prorogue request

Liberal insiders have meanwhile talked about their desire to use the pandemic as a way to introduce true and lasting social reforms, while the NDP has called for the introduction of something close to a universal basic income (UBI).

On Tuesday, Trudeau said he could “think of no one who is better suited” to take on the role of finance minister. He said that he and Freeland have been on the same page for years about the issue of wealth inequality and social spending, which was part of the reason he appointed her to the position on Tuesday.

Trudeau also ruled out a new tax hike to address the massive fiscal shortfall, saying “the last thing Canadians need is to see a raise in taxes right now.”

The Trudeau government has long claimed that it could expand social spending while also practising fiscal responsibility, running successive deficits while its debt-to-GDP ratio continued to hover around 30 per cent. At the same time it introduced a modest tax cut for middle-income earners.

But the COVID-19 pandemic caused that ratio to balloon almost immediately to 49 per cent, prompting calls for a new fiscal anchor.

“There hasn’t been a clear direction on where do we go next with the economy and what do we do with this mounting deficit,” said Robert Asselin, a former top advisor to various Liberal finance ministers.

“At some point, the new minister of finance needs to say, ‘This is my ceiling,’ or ‘This is my debt-to-GDP ratio objective,’ or ‘This is the declining path for our deficit.’ Otherwise a lot of businesses will remain nervous around the fiscal environment.”

In an open letter to Freeland on Tuesday, the Business Council of Canada called on her to adopt “clear fiscal targets that provide a frame of reference against which to judge the incessant calls for new spending.”

It warned that “now is not the time for a massive re-engineering of time-tested social programs,” and said that sound fiscal management is “essential to ensure a rising standard of living” for Canadians.

Perrin Beatty, president and CEO of the Canadian Chamber of Commerce, said Canada needs to address many of its long-standing competitiveness shortfalls and unlock the private sector post-pandemic.

“Faced with a debt that now totals over $1.2 trillion and an economy that has sustained serious damage, it is clear that Canada cannot regulate and spend its way to prosperity,” he wrote.

Observers are uncertain over whether Freeland will push back against the high-spending instincts of the Prime Minister’s Office. A number of media reports in recent days suggested that Morneau had sought to establish lower spending thresholds for major financial assistance programs like the $2,000-per-month Canada Emergency Response Benefit (CERB), but was ultimately rejected.

But many critics outright rejected claims that those disagreements ultimately led to Morneau’s departure, saying instead that he cut ties with the Liberals over the ongoing WE Charity scandal.

Conservative finance critic Pierre Poilievre said Trudeau has vastly overstated skirmishes between PMO and Finance on matters of budgeting, saying the prime minister is now “weaving this malarkey about a policy difference. There is no policy difference,” he told reporters Tuesday morning.

He said if he fired Morneau for breaking the Ethics Act over the WE scandal, then Trudeau would have to resign for the same offence.

Poilevre said Freeland “failed in her negotiations with Donald Trump” and said that “higher taxes is a religion” for the newly-minted finance minister. The latter was a reference to her comments on American television show Hardball in 2011, in which Freeland said “amen” to the notion of a tax hike in the U.S.

Elliot Hughes, who served as deputy director of tax under Morneau between 2015 and 2018, said slight disagreements between the Finance Department and PMO are commonplace, and rarely lead to major battles.

“You’re going to have disagreements, that’s just normal,” said Hughes, who now works as an advisor for Summa Strategies Canada. “If you don’t have disagreements I think there’s something wrong.”

He said he didn’t recall a circumstance during his time at Finance in which disagreements between the two offices rose to the level of a “major rift.”

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