Prime Minister Justin Trudeau is dangerously close to taking the federal government back into that red zone of not being able to pay its bills out of current revenue. Photo: Nathan Denette/CP
First there was the jubilation, and the upending of traditions. Then came the economic stagnation and mutual contempt. By the end, there was seething hatred.
I don’t remember the first years of Pierre Trudeau’s time in power, but I do remember the last five. Having dragged his 1974 mandate to its almost five-year limit, Trudeau was ousted by Joe Clark and the Progressive Conservatives in 1979. Less than a year later, he was back with a majority.
Some of Trudeau’s most enduring changes came during this final mandate that should never have been: the Charter, the National Energy Program, the Canada Health Act. Another that he hoped would endure – his peace initiative – was a joke from the get-go. He announced his retirement on leap day in 1984.
Little appreciated at the time – outside some stodgy economic and financial circles – were Trudeau’s achievements in spending more than the government collected. (With his own money, Trudeau was a notorious tightwad.) His regime’s string of primary (often called operating) deficits were noted recently in the Financial Post by professor Jack Mintz:
A primary deficit has not appeared since the fiscal years 2009/10 and 2010/11 when a severe global financial recession took place. For two decades prior to 2009, we had only federal primary surpluses. Even in the latter Mulroney years with a deep 1990-91 recession, Canada ran a primary surplus. The real story was profligate spending during the Pierre Trudeau years resulting in a string of primary deficits starting in 1975/76 for over 12 years, even during robust growth years.
Brian Mulroney was criticized for running large deficits. But these were mainly due to the high interest rates on government debt at the time. Even so, as Mintz notes, Mulroney and his finance minister Michael Wilson succeeded in bringing operating costs in line with revenues, and sustained that discipline through a recession. Had there not been Pierre Trudeau’s debt to service, those deficits would have been much smaller.
Père Trudeau’s deficits were the foundation for the federal debt that now exceeds three-quarters of a trillion dollars. Interest on that debt was $24.4 billion in 2019-20 alone. The reason professor Mintz is highlighting Pierre Trudeau’s 12-year record of operating deficits is not just historical interest: his son is dangerously close to taking the federal government back into that red zone of not being able to pay its bills out of current revenue:
In 2016/7 and 2017/8, Canada skirted close to the line with its primary surplus almost disappearing. The primary surplus did widen in 2018/9, reaching over $9 billion, but this cushion was only 0.3 per cent of total revenues. It would not take much of a swing for the primary deficit to reappear.
Trudeau the Younger is also likely to break his promise of a declining debt-to-GDP ratio, a fiscal fig leaf designed to cover up the Liberals’ foolhardy deficits in a strong economy. Even before the blockades started shutting down rail traffic, and before the Wuhan virus started shaking stock markets, Canada had already posted an anemic growth rate of just 0.1% for the last quarter of 2019.
Yet reports are that Trudeau will forge ahead with a so-called climate change budget sometime this month or next. The Liberals’ aim is to make Canada’s carbon emissions “net zero” by 2050. No doubt their political calculation was that most of the pain from this de-carbonizing would be borne by Alberta and Saskatchewan, provinces the Liberals have written off electorally.
But the CoastalLink natural gas pipeline – the trigger for the rail blockades – is in British Columbia, and is endorsed by NDP premier John Horgan. Last week, influential investor Warren Buffett cancelled his $4-billion investment in a natural gas project in Québec.
Neither Buffett nor his company Berkshire Hathaway would explain why. But GNL Québec – builder of the $9-billion Énergie Saguenay project to export Western Canadian natural gas from a proposed facility in Quebec – said that “the reason is the recent challenge in the Canadian political context.” The project is expected to create 6,000 jobs during its construction.
Trudeau disappointed many Canadians when he failed to deliver a tough message to protestors blockading rail lines. They were hoping for a repeat of Pierre Trudeau’s “just watch me” when asked how far he would go against violent Québec separatists. But Justin does seem to share his father’s defiance, when it comes to how low he is willing to take Canada’s finances in the name of climate change. Just watch him.