Federal firewall: budget plan is for long term resilience, not stop gaps

39th Minister of Finance, Bill Morneau Finance Minister Bill Morneau has faced pressure from industry associations, political foes and some economists to draft a fiscal plan that confronts head-on the open questions of how NAFTA’s uncertain future and lower American corporate taxes will impact Canada.(Photo By US Embassy Canada – https://www.flickr.com/photos/us_mission_canada/23553980321/, CC BY 2.0)

OTTAWA – With so much economic uncertainty radiating from the United States, the Trudeau government will table a federal budget Tuesday that aims to establish a firewall against all that volatility next door.

Canadians can expect a budget designed to make the economy more resilient over the long term, insiders say – rather than one featuring more immediate, targeted measures to address those ever-present, Donald Trump-fuelled competitiveness and trade unknowns.

Finance Minister Bill Morneau has faced pressure from industry associations, political foes and some economists to draft a fiscal plan that confronts head-on the open questions of how NAFTA’s uncertain future and lower American corporate taxes will impact Canada.

There have been repeated calls on Morneau to cut business taxes and – thanks to a surprisingly strong economy last year – to finally lay out a detailed path back to balanced books.

But Morneau, long a vocal champion of playing the long game, has all but ruled out that there will be specific measures Tuesday that respond to the U.S. direction, saying last week that he wouldn’t act in an “impulsive way “ to the U.S. corporate tax cuts.

His preference for focusing instead on what he can control at home appeared to be on display Friday when he met with Grade 6 students in Toronto, where he took part in the long-standing pre-budget tradition of donning a symbolic pair of new shoes.

One student, not yet schooled in the finer points of political nuance, asked Morneau point-blank if he was afraid of the U.S. president.

“Uh … no, “ Morneau replied, matter-of-factly, before making a joke about the colour of Trump’s hair and noting he had met him several times.

“He’s obviously trying to do his best and he’s got a really tough job, “ he said. “We all hope he does a good job, because it matters. “

None of the kids wanted to know when Morneau plans to eliminate the federal deficit, unlike his Conservative rivals, who relish asking the question at virtually every turn. His poker-face answer would suggest anyone looking for clues Tuesday will be disappointed, even though the Liberals vowed during the election campaign to return to balance by 2019.

Indeed, they’ve already shattered a promise to keep annual shortfalls below $10 billion, leading critics to warn of the perils of accumulating more public debt at a time of economic strength. Some have wondered how big those deficits would get in the event of a sudden downturn.

Those warnings don’t seem to have left much of an impression on the Liberals; Ottawa’s latest forecast, released in October, projected a $14.3-billion deficit for 2019-20.

The government is, however, expected to stick with its so-called fiscal “anchor “ to lower the net debt-to-GDP ratio – a measure of Ottawa’s debt burden – each year.

The budget will chart a way forward by making investments in a range of areas – from fundamental science to an expanded tax credit for very low-income earners, to an Indigenous housing plan, to conservation, to helping people upgrade their skills for the evolving workforce.

More broadly, its overarching theme will be a focus on gender equality.

The Liberals have a strategy they believe can lift the economy’s long-term potential, all the while buttressing their political identity as a feminist government: encouraging more women to join the workforce, a vital tonic for Canada’s future prosperity, especially with an aging population.

Measures expected Tuesday include a plan to remove barriers between women and work, including new “use-it-or-lose-it “ parental-leave incentives for fathers and steps to address the gender wage gap. All budgetary measures will also be run through a gender-based analysis.

The budget will start laying the foundation for proactive equal pay in Canada by accounting for the cost of pay equity in the federal public service and in federally regulated workplaces, said one government official familiar with the plan who spoke on condition of anonymity.

While it’s not clear how much the measures will cost, the price tag would likely be significant: the public service and federally regulated organizations together employ nearly 1.2 million people – more than six per cent of all workers in Canada.

“We’re going to work with our budget to make sure that we encourage young girls to think about what kind of jobs they can go into and we don’t have any things that stop women from being successful in the economy, “ Morneau said Friday.

“The reason we want to do that is, first, because it’s fair and, second, because if everyone’s able to get to their full potential, whatever they want to do, then we’re all going to be more successful. “

Morneau is no doubt hoping for a more politically successful 2018 himself.

He took a beating last year from the opposition and from small-business owners over his widely panned tax-reform plan, allegations of conflict of interest and stinging ethical questions over how he arranged his substantial personal assets upon entering cabinet.

Tuesday’s budget could reopen at least one of those wounds. It will include draft legislation to limit the use of passive investment income by the top three per cent of the wealthiest incorporated individuals, one of the tax changes that proved such a political headache for the government last year.

That might have been on his mind Friday as he donned a sharp new pair of deer- and calf-leather Jasper Derby shoes, courtesy of Edmonton-based designer Poppy Barley.

“We’re hoping they fit, “ he joked with the students. “If not, we’re going to have a rough day on Tuesday. “