Finance Minister Bill Morneau makes an announcement on housing in Toronto Monday, October 3, 2016. (Nathan Denette/CP)
In the months after Bill Morneau became the finance minister, I asked a senior Liberal source to describe him. “He’s Bruce Wayne,” the source said, referring to the fictional alter ego of Batman, the business tycoon who dons the black cape and mask to save Gotham from villains. At the time the Liberals were still so intoxicated by their massive victory that this kind of immodest self-mythologizing didn’t strike them as, well, cartoonish. In their own minds they were super heroes saving Canada, which is why their first budget looked like it was produced in the DC fantasy factory, a big money blockbuster with huge ambitions.
After unveiling his first budget a year ago, Morneau proved to be a cool customer, always pleasant and unruffled, easy with a quip, effortlessly smacking down pesky campaign promises about “a modest short term deficit” of $10 billion and a plan to come back to balance by 2020, as if they were campy old villains. Pow. Bam. Instead of being chastened by breaking major fiscal promises, Morneau flashed his much larger deficit numbers in the sky like the Bat-signal, heralding rescue to come.
So here we are at budget number two and what’s Bruce Wayne up to now? Turns out, a lot less. Morneau has left the cape in the Bat cave. This was not a blockbuster, super-hero budget, but more like the forgettable sequel, like the 1997 George Clooney version of the Dark Knight, which doesn’t kill the franchise or the stars, but no one wants to talk about it again. On budget day the Finance Minister’s people all said this budget that was part of a “plan,” a continuation of budget one, but that masked the harder truth: there’s no more money to toss around without ballooning the deficits even further and there’s no plan to get back to balance. More sobering, there’s still no guarantee that the first budget actually did what it was supposed to do: stimulate growth. The Liberals have gone from save the world to “do no harm.”
That’s the phrase Doug Porter, the chief economist and managing director of BMO used to describe the fiscal side of the budget to me. From his point of view, the fact there was no big hit on capital gains or on stock options and no big new deficit spending—all things the NDP wanted to see—meant that the budget was, essentially, pain free. Still, according to Dan Kelly, the CEO of the Canadian Federation of Independent Business, small businesses were not happy to see Employment Insurance premiums go up five cents ($1.68 per every $100 of insurable earnings). He gave the budget a mark of C, which sounds bad, but that’s up from the F he gave last year’s budget.
Budgets are three things: fiscal documents, policy documents and political documents. The fiscal side comes first, as everyone rushes to pour over the charts and tables. How much are they spending and on what? The projected deficit of $25 billion from the fiscal update went down to $23 billion, which is good news only if you conveniently forget that the original promise was $10 billion.
The baseline shift tactic is an old Ottawa political trick, but it makes bureaucrats who look at the charts lose their hair. Kevin Page, the former Parliamentary budget officer, who likes to point out that he lost his hair long ago over plans like these, is deeply concerned about the growing debt and the lack of what he calls “fiscal anchors,” ways to measure what we are getting for our money. The government likes to use the debt-to-GDP ratio as the new key measurement, but the fact is, with no plan at all to bend the curve back to balance it hard to trust why that won’t get worse. By 2023 the national debt will grow by over $140 billion and it hard to make assumptions about economic growth that far out. As Page told me before the budget was even tabled, “the key question to ask is, what do we get for the all the money spent? How do we measure the success of the programs and hold the government to account?”
Typical of Page to have answers and well as questions, one of the reasons why he remains the most respected and trusted person to turn to when a budget is tabled. A few weeks ago his Institute of Fiscal Studies and Democracy at the University of Ottawa put out a report on the key theme of the new budget: skills and innovation. “Since Prime Minister Harper’s 2015 Budget, program expenses and accumulated debt levels in Canada have risen dramatically,” the report said. “The magnitude of the government’s two-year program spending increase (2017-2018 vs. 2015-2016) is unprecedented in modern times with a 12 per cent increase in spending over this period.”
Then came the kicker. “With the current context of low growth and low productivity, Canadians should be concerned about ongoing deficit-financed activities. With low interest rates, borrowing more money may seem easy and appealing. The devil, however, is in the details. If interest rates increase or economic growth further weakens relative to planning assumptions, young people will be paying dearly for today’s deficit financed activities.”
READ MORE: What Budget 2017 offers families
Budget 2017 was supposed to answer this question, but it didn’t. Instead, it focused on some modest program spending, shifting money around and backloading spending to hit during the 2019 election. In terms of skills and innovation, which was supposed to be the big headline, there were modest additions and some shuffling. Roughly $1.6 billion was added over six years for training, which the provinces will take, and farmers are happy that they will have access to innovation funds, joining the so-called cluster of industries like green tech and health that are eligible for $950 million of funding over five years. More money will be spent on a Strategic Innovation Fund, which sounds good, but it is like having your parents telling kids that they have to eat more vegetables. It is old news and might not make a difference.
Before the budget was even announced, Kevin Page’s report on innovation found “the government is spending approximately $22.6 billion on innovation and skills development and training across 147 activities.” What do we get for that cash outlay? We have no idea. “The majority of activities do not actively assess both value for money and the need for evaluation,” the report concludes. “Of the 147 activities, it should be noted that the 21 tax expenditures do not have any publicly available performance metrics. Of the remaining 126 program activities, we found only a small number with strong performance metrics.” So here we are spending more money on programs that we have no way to measure their success. A big red flag should be going up here.
That does not mean that there was nothing in the budget, or that, because it’s not a blockbuster spending document, it’s easy to dismiss. Cities were happy to see $11 billion dollars over eleven years for affordable housing, which a big number, even if they wanted 12.6 billion over 8 years. They will take that because the problem of social housing is so urgent. The child care issue is slightly more vague. Maternity leave is extended to 18 months, but the same money allocated for 12 months now has to be stretched. So families get time, but no money. There is $7 billion dollars for new child care spaces and the government claims this will create 40 000 news spaces, but there are no details how this happens. Suddenly we’re in this strange patch work, where the Liberals first followed the Harper plan of allocating money to families through the Child Care Benefit and now they’re reverting to the old Martin plan of a national child care strategy. Hard to say what this now expensive cross breed of policy will end up looking like because, guess what? The money only comes around during the next election cycle and will require negotiations with the provinces. That hasn’t always proven to be an easy thing.
Perry Bellegarde, the National chief of the Assembly of First Nations told me that he was pleased to see $33 million a year go to post-secondary education for indigenous students and $300 million more on housing issues, but even he said there is still a long way to go, especially on the Canadian Human Rights Commissions recommendation on child welfare. There was no money for that, something Tom Mulcair immediately raised as one of the big budget whiffs. Fair point.
Lots of headlines emerged on the ticky tacky tax on alcohol, smokes and adding the GST to Uber rides, but those were small hits even if they hurt consumers. The Liberals claim the reason they took out the public transit tax credit because it was actually not used very much, but the optics of that were bad, especially for the people who do use it to subsidize their transit passes. It was off brand and for the $200 million the government will save they will take a beating for this in urban centres where transit is a huge issue and where cities are now spending their own money to subsidize low income transit fares.
Because of the super hero mythology surrounding the first year of the Liberal government, much of the criticism of this budget focused on what was missing. Veteran looking for a change from the lump sum payment in the New Veterans Charter back to a life time pension got a promise but no money. Those in the department of defence who expected to get a Trump Bump and have new money for Canada to up its NATO spending obligations—we are at 1 per cent of GDP and NATO and Trump has urged Canada to get to the target of 2 per cent—got nothing. No one expected a doubling of the budget—that would have meant another 20 billion a year—so that was pure fantasy, but they got zilch. Critics will call it another decade of darkness, defenders will say it is the exact same status as Stephen Harper left the military, but either way our military men and women will have to keep up their MacGyver ways to keep planes flying and ships sailing.
So the fiscal side got a thorough assessment and the budget, on this score, doesn’t add to anything dramatic. There are plans, there are proposals, but not much money and still big debts coming.
So the fiscal side got a good airing and the budget is, on this score, thin beer. As a policy document, however, the budget does better. One way to judge a government is by the hard questions they ask and the issues they try to tackle. The Liberals have decided deficits are not the real enemy—caution flag here—but that disappointing innovation performance and low productivity are more crucial. Those are real issues and merit real attention, but this document reveals only that they have recognized them, not they can or will solve them.
That gets us to the political assessment. The budget is a clear indication that the Liberals have given up their comic book persona. There is no more Bruce Wayne with a super hero alter ego, ready to take on the world. The Liberals have realized the problems are much bigger than they first thought. Their promises are much harder to fulfill. Growth is more elusive than they assumed and deficit spending is not a guaranteed medicine. This budget geared down spending because the Liberals have come to the sobering realization that government is not just the solution to problems, but can quickly become the source of problems.
The money shifted around in this budget makes it more of a political document than anything, something more for talking than transforming. The spotlight in the sky is off. There is no rescue. The middle years of the Liberals have become much more modest. They have to slowed down considerably because it’s quite clear they were about to trip over their own cape.